Fundamentals finally starting to matter: Implications for USD

A look at the dollar

A look at the dollar

Bank of America Global Research notes that the FX landscape is evolving with fundamentals are back in the driver seat.

“Risk appetite has been the dominant factor in FX markets since last March,
when official sector policy began aggressively supporting markets,
serving to collapse FX risk premium as the US dollar declined back to
presently-neutral valuation levels. But our analysis indicates
that the landscape has finally broadened to include traditional
fundamental factors including relative interest rates. Within a
backdrop of US growth at 6% and US 10-year yields at 1.75% this year,
per revised forecasts, we think that this matters,” BofA notes. 

“Factor
shifts lend support to our thesis that improving US fundamentals will
provide a tailwind to the US dollar, increasing the risk of a rally as
the year unfolds,” BofA adds.

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