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May 28 - 12:55 PM

BofA: Caution Against Chasing Current USD Sell-Off

By eFXdata  —  May 28 - 10:45 AM

Synopsis:

BofA advises caution against pursuing the recent USD sell-off, despite a structural bearish outlook on the USD by end-2024. They highlight a combination of US economic resilience and a cautious Fed stance as key factors tempering the immediate downside risks for the USD.

Key Points:

  • US Economic Resilience: Despite recent negative data surprises, the US economy shows continued resilience, reducing the likelihood of near-term Fed rate cuts.
  • Fed's Cautious Stance: The Federal Reserve's reluctance to indicate imminent rate reductions supports the holding power of the USD.
  • Impact of China’s Policy: While China’s policy adjustments could potentially weaken the USD by boosting global import demand, the effects are uncertain, and the timeline is unclear.

Conclusion:

BofA recommends a cautious approach towards the current USD sell-off, suggesting that the structural bearish outlook for the USD towards the end of 2024 does not warrant aggressive short positions in the short term. This is due to ongoing US economic strength and a conservative Fed, combined with uncertainties in the global economic landscape.

Source:
BofA Global Research

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