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Jan 16 - 10:55 AM

BofA: What Would Happen in FX Markets If No Central Bank Cuts Rates This Year?

By eFXdata  —  Jan 16 - 10:10 AM


Bank of America (BofA) explores a hypothetical situation in the foreign exchange market where no major central bank undertakes rate cuts in 2024. This scenario, though seen as unlikely by the consensus, is considered to understand its potential market implications.

Key Points:

  1. Central Bank Rate Cut Expectations:

    • The current market consensus heavily anticipates rate cuts by G10 central banks in 2024. BofA questions this scenario and explores the market dynamics if rate cuts do not materialize.
  2. Currency Ranking in No-Cut Scenario:

    • In a scenario without rate cuts, BofA ranks G10 currencies based on market pricing, correlation with equities, and market reactions during a period last year when rate cuts were priced out.
    • According to their analysis, the USD, EUR, and CHF would likely perform best, while currencies like the NOK, AUD, and JPY might underperform.
  3. Market Reaction Variability:

    • The market reaction in this hypothetical scenario could vary depending on how it aligns with or diverges from current expectations. A delay or slowing down of expected rate cuts could trigger a similar market response.
  4. Inflation Dynamics and Market Differentiation:

    • The scenario also holds relevance if markets begin to differentiate currencies more sharply based on the latest inflation trends.
  5. Outlook for the USD:

    • Despite BofA's bearish outlook on the USD for the year, they anticipate a choppy path ahead, influenced by ongoing market developments and central bank actions.


BofA’s hypothetical scenario underscores the significant impact of central bank policies on currency markets. While rate cuts are widely expected in 2024, the possibility of a deviation from this consensus brings attention to alternative market dynamics and their potential effects on G10 currencies. This analysis provides valuable insights into currency performance under different monetary policy conditions.

BofA Global Research


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