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Investing.com - Short positions in the U.S. dollar are perceived as the most crowded trade, according to a survey conducted by Bank of America Securities, but conviction in being short the U.S. currency remains largely intact.
Survey respondents remain ambivalent on U.S. duration versus Europe, the U.S. bank said, and especially versus recent history, but they do not hesitate to extend their U.S. dollar short positions, even with short dollar positions clearly perceived as the most crowded trade.
However, dollar positioning continues to lag bearish sentiment, with short U.S. dollar positions remaining this year’s highest conviction trade.
This is consistent with survey respondents anticipating trade uncertainty to stabilize at high levels and U.S. exceptionalism to fade, and many preferring to lower their effectively unhedged U.S. asset exposure.
Growing U.S. fiscal concerns could add more pressure on the U.S. dollar, the survey said, and so perhaps could – the not particularly high – fiscal hopes in Europe.
Survey participants believe fiscal concerns in the US have been the biggest driver of recent curve steepening globally, with most survey respondents believing it will take a long-end rate move of greater than 50 bps to generate a shift in U.S. politics towards fiscal discipline.
But U.S. data resilience could still save the day for the U.S. dollar, said Bank of America Securities.