BofA: Reward Reducing Inflation W/out Hurting Growth, Maintain Bearish EUR/USD ’23 View

Bank of America note that they “find that G10 economies that have surprised the consensus positively on growth and negatively on inflation this year have seen their currencies appreciate.”

• “The former is intuitive, but the latter may sound counterintuitive. However, our results suggest that lower inflation without much economic pain/soft landing is better for a currency than persistent inflation with economic pain-hard landing/stagflation -which we do find intuitive.”
• “Economies facing a better growth-inflation trade-off as they try to reduce inflation from a high level will see their currencies appreciate.”
• “In this context, a better U.S. data mix compared with that of the Eurozone supports our still bearish EUR/USD view for the rest of the year, despite remaining bearish USD for next year based on valuation.”