Bank of America Global Research takes an agnostic check of G10 FX moves since November. BofA used principal component analysis (PCA) approach to identify global drivers of G10 FX, and utilize these to compare actual vs expected moves during the latest USD sell-off.
"The EUR stands out as exceeding its estimated appreciation the most, by almost 2ppt. This is consistent with the EUR having been the preferred USD short as it broke through 1.20 in early December, as well as leading our G10 positioning scorecard at the start of 2021. While we expect the EUR to strengthen, it will be a bumpy path given its seeming overshoot as well as idiosyncratic risks related to the reintroduction of fiscal rules," BofA notes.
"In contrast, GBP has underperformed its estimated appreciation: it is clear this reflected the Brexit risk premium during last-minute negotiations heading into year-end. What is less clear is whether a deal is a deal (no matter how bad) and warrants "catch up" by GBP FX," BofA adds.