Asia FX moves little with focus on US-China trade, dollar steadies ahead of CPI
Investing.com -- Bank of America is cautioning that the market’s extreme bearish sentiment toward the U.S. dollar could present risks, according to a recent research note. The bank’s investor surveys indicate that negative sentiment toward the dollar has reached historically extreme levels.
Despite these warning signs, BofA maintains its own bearish outlook on the dollar. The bank identifies several potential catalysts that could drive near-term dollar strength, including continued U.S. economic resilience, possible moderation in tariff policies, and fiscal stimulus measures.
The bank specifically noted the possibility of avoiding reciprocal tariffs on July 9 as one factor that could temporarily boost the dollar. However, BofA recommends viewing any near-term rallies in the dollar as selling opportunities, unless there are significant shifts in policy or economic conditions.
For corporate clients, BofA advises non-U.S. companies to use any dollar strength as an opportunity to increase their USD hedge ratios. This strategic approach would help protect against currency fluctuations if the dollar’s value eventually declines as the bank expects.
U.S. exporters are encouraged to take advantage of current market conditions, with the bank noting "narrow option skew premiums" that make USD calls relatively inexpensive compared to puts. This pricing dynamic creates favorable conditions for hedging foreign currency exposure, according to the bank’s analysis.
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