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Bank Of America: An Important Message From USD Risk Reversals

USD

Bank of America note that “the safe haven tag attached to USD is becoming a misnomer this year, reflected in the sharp compression of G10 FX skew and weaker spot-volatility correlation. Both are consistent with levels observed at the end of the last two Fed tightening cycles (2006 & 2018). High U.S. yields constrain the degree to which USD benefits from risk-off given less use as a funding currency for carry trades, as well as the possibility of Fed rate cuts. This is why U.S. regional bank stress has not overtly supported the dollar and also why 2011 may not be the right FX corollary for upcoming debt ceiling risks.”

MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com
MNI London Bureau | +44 0203-865-3809 | anthony.barton@marketnews.com

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