BofA Look At The USD And Risk-Off Dynamics

Bank of America note that “USD has optically benefited from the sell-off in equities since August. But we this risk-off dynamic is less evident under the hood.”

• “USD's beta to stocks has moderated, especially vs. cyclical sectors, rates explain a larger part of USD appreciation than equities and USD skew has not meaningfully widened during the latest risk-off episode.”
• “High U.S. yields constrain USD gains during risk-off given less use as a funding currency for carry trades, as well as the pricing of Fed rate cuts when the shock is U.S.-specific.”
• “Watch the relative performance of U.S. services vs. manufacturing as a proxy for U.S. centric growth deterioration and peak USD - we do not expect this until 2024.”