Bank of America Global Research discusses the USD outlook and maintains a bullish bias over the medium-term.
"We continue to expect a still-underpriced US rate path to be a tailwind for USD over the medium term, likely propelling resumption of gains and attainment of our 1.15 EURUSD 4Q forecast. But the recent rise in risk sensitivity across FX pairs presents two-way risks for USD," BofA notes.
"While near-term stabilization in risk assets in the context of elevated FX risk premium suggests a potentially deeper USD pullback, continued unresolved uncertainties remain a persistent source of USD support, as seen since early September. We continue to monitor global inflation dynamics carefully, but think medium-term US capacity pressures trump energy-related pressures elsewhere, leaving the balance of inflation risks - and their influence on monetary policy outcomes - a net USD positive," BofA adds.