BofA On Early ’24 Flow Dynamics

Bank of America write “a partial reversal of the end-'23 FX flows marked the start of '24. Toward the end of '23, investors sold USD, largely across the board and especially vs. EM FX, amid the improved US inflation outlook and the dovish December FOMC meeting.”

• “But resilient US activity data forced a partial rethink among investors at the start of '24, already ahead of the relatively hawkish January FOMC meeting and the solid payrolls report, according to our proprietary FX flows. The recent activity in the FX options space has been along similar lines, with the demand for USD calls picking up.”
• “This year's FX price action seems to be hedge fund-driven, and correlates well with Asia-based investor flows. Near-term USD upside would likely require stronger real money participation, but we would watch the hedge fund space for a USD sell-off.”
• “Overall, FX positioning remains light in most cases.”