BofA Client Survey: USD Vulnerabilities Confirmed

In light of releasing their latest client survey Bank of America note that “USD FX overweights have been cut back dramatically, and the change in sentiment has been the most pronounced since early 2021.”

• “Last month's survey flagged three issues for dollar positioning: 1) USD longs were considered the most crowded trade; 2) USD longs were considered to be vulnerable to a repricing of the Fed; 3) respondents thought too few cuts were priced globally and expected the Fed to cut the most.”
• “We concluded at the time: "This should erode faith in USD strength, and suggests that USD longs may indeed be vulnerable, or that duration positions could quickly be rebuilt."
• “As it was, we saw both. FX overweights were cut sharply, as highlighted above, while USD duration overweights were extended. USD is no longer considered the most crowded, front-ends less mispriced, though the Fed is still expected to cut the most.”
• “This makes the USD less vulnerable than a month ago. But suggests that the turn in US data and the more explicitly dovish Fed could drive a continued positioning unwind in USD.”