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Jun 14 - 12:55 PM

BofA: Insights from the Latest FX and Rates Sentiment Survey

By eFXdata  —  Jun 14 - 10:45 AM

Synopsis: 

Bank of America’s recent FX and Rates Sentiment Survey reveals key trends in market sentiment, highlighting perceptions on crowded trades, USD risks, and the impact of US inflation and the upcoming US election on currency movements.

Key Points:

  1. Crowded Trades:

    • Long risk continues to be perceived as the most crowded trade.
    • The fear of crowded USD long positions has dissipated.
  2. USD Upside Risks:

    • Sticky US inflation and associated Fed repricing are viewed as the biggest upside risks for the USD.
    • Persistent US decoupling risk has reemerged, adding to the potential upside for the USD.
  3. US Election Impact:

    • With the US election approaching within a 3- to 6-month window, a fifth of respondents view election-related positioning as a downside risk for the USD.
  4. Fed Rate Cuts:

    • The survey suggests that a scenario where the Fed does not cut rates in 2024 is unlikely to trigger fresh highs for the USD.

Conclusion:

BofA's survey highlights that while long risk remains the most crowded trade, concerns over USD longs have lessened. Sticky US inflation and potential Fed repricing are seen as major upside risks for the USD, while the upcoming US election is viewed as a potential downside risk. Despite these factors, the lack of Fed cuts in 2024 is not expected to drive the USD to new highs.

Source:
BofA Global Research

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