Bank of America Global Research discusses the USD outlook and expects a broad USD rally over the next 1-2 months.
"We expect that broad 1-2 month USD rally will begin this week...Over the last few months the US dollar has sharply sold off in a perfect storm of a liquidity-fuelled surge in risk appetite, US economic underperformance caused by a (now ebbing) surge in US virus cases, fears of a US fiscal cliff, a dovish take on the Fed and speculative flows pressing the FOMO trade. Official sector selling of USD amid a strong price trend lower has stoked the USD debasement thesis, which we recently undercut in the context of a large US output gap and low inflation," BofA notes.
"Looking forward, we expect USD to rally into the US election on a rebuilding of FX risk premium amid elevated downside market risk, one-way positioning, improved relative US data outlook and bullish seasonals. The ECB this week could be a catalyst," BofA adds.