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Bank of America (BofA) released its macro portfolio estimates, indicating a shift in currency rebalancing needs within the conventional 60/40 portfolio mix of global equities and bonds.
According to BofA’s methodology, the Euro (EUR) has demonstrated an outperformance against the US Dollar (USD), British Pound (GBP), Japanese Yen (JPY), and Emerging Market (EM) denominated assets throughout January.
The analysis suggests that there will be rebalancing flows moving out of EUR, with a negative 1.1 standard deviation Z-Score, and into JPY, which has a positive 0.4 standard deviation Z-Score. The USD, GBP, and EM currencies are also expected to see some inflows, albeit to a lesser extent.
BofA’s report further notes that while there may be short-term upside risks to the USD, the bank maintains a forecast that the USD will begin to moderate around mid-year. This moderation is anticipated as US economic policy becomes clearer, which could potentially impact currency dynamics and investment strategies.
The 60/40 portfolio strategy typically involves holding 60% of the portfolio in equities and 40% in bonds. Currency rebalancing within such portfolios is a common practice to maintain a desired level of risk and return, especially in light of performance disparities between different asset classes and currencies.
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