Bank of America (BofA) emphasized several factors that contributed to the potential obstacles for the US dollar.
The bank pointed to the recent negative shock in US economic data and growing positive sentiment towards China's economy as the main drivers behind the challenges ahead. Additionally, BofA notes the currency's catalyst relative to its fundamental drivers.
The report advises investors to be cautious in engaging in the recent massive USD selloff. The bank suggested that the expected interest rate cuts by the Federal Reserve and China's economic recovery are still distant prospects.
Despite the bearish outlook for the USD towards the end of the year, BofA emphasized that low volatility and stable interest rates currently reduce the attractiveness of short positions against the USD.
Looking ahead to the end of 2024, BofA maintains a bearish stance on the USD. However, the bank emphasized the need for caution and advised against acting based on the recent devaluation of the currency.
Despite disappointing US data, the resilience of the US economy and the Federal Reserve's reluctance to cut rates immediately support a more measured approach.
The report also discusses the potential impact of China's economic policies on global trade and the USD. However, there is uncertainty about the impact of China's property market easing and the time lag before the policy takes effect. Thus it requires a patient approach to currency movements.
