Synopsis:

According to BofA’s latest FX and Rates Sentiment Survey, investors maintain a preference for short US rates and long USD positions, aligning with expectations for fiscal expansion and higher tariffs under the new policy mix. However, with recent adjustments in rates pricing and moderate USD positioning, near-term uncertainty over the scope and timing of tariff hikes may lead to a temporary USD pause.

Key Points:

• Investor Sentiment: Short US rates and long USD are popular trades among investors anticipating fiscal expansion and elevated tariffs.
• Rates and Duration Positioning: With US fiscal policy risks now better priced, investor interest in duration longs has moderated to neutral in recent months.
• USD Positioning: While USD longs have grown, they remain below historical extremes, as investors weigh uncertainties around tariff implementation.
• Potential USD Pause: The current lack of clarity on the scale and timing of tariff hikes could temper immediate USD bullish momentum.

Conclusion:

BofA observes strong sentiment for short US rates and long USD, yet near-term USD gains may slow as markets await more concrete details on tariff policy. This measured outlook suggests a potential pause in USD momentum, even as the broader policy backdrop supports continued investor interest in USD and short rates.