The U.S. Dollar Faces Selling Pressure Across the Board, Warns Bank of America
In a recent note dated Aug. 19, analysts at Bank of America revealed that the U.S. dollar is experiencing selling pressure across the board, with hedge funds and corporates leading the way. This has led to gains for currencies such as the EUR, JPY, and GBP, as well as high beta G10 currencies and EM FX. The hedge fund long USD position is particularly at risk.
Despite sterling performing poorly in the G10 currencies in August, investor proprietary flows remain positive, especially with strong support from hedge funds. Bank of America noted that GBP positioning is long but not overstretched, giving hedge funds more room to maneuver.
Last week marked a positive turn for the bank’s proprietary EM FX after recent market turbulence. Hedge funds were seen buying INR, KRW, and ZAR while selling HUF. Real money investors bought BRL, IDR, SGD, PLN, and CZK but sold CNH and ILS. Overall, EM FX positioning is slightly short, with Asia being notably short after the recent market sell-off. The hedge fund short EM FX position is also appearing stretched, according to Bank of America.
Analysis:
The U.S. dollar is facing significant selling pressure across various currencies, with hedge funds and corporates leading the way. This has resulted in gains for currencies like the EUR, JPY, and GBP, as well as high beta G10 currencies and EM FX. Investors, especially hedge funds, are supporting these movements. Despite sterling’s weak performance, there is still positive sentiment among investors. The overall EM FX positioning is slightly short, with Asia being notably short after recent market turbulence. The information provided by Bank of America can help investors understand the current market dynamics and make informed decisions about their investments.