BofA Suggest Some Hedging Of USD Upside Risks For U.S. Corporates

Bank of America note that “the USD has rallied by more than 3% in 2024, reminiscent of the 2022 move where its strength had weighed on U.S. corporates' bottom line.”

• “Short-term quant signals point to intact USD uptrends vs G10 peers.”
• “While our forecasts still look for eventual USD weakness over the medium-term, the turning point has become harder to time and path to lower USD is now less clear.”
• “The year-to-date rally has been driven by strong U.S. growth and carry relative to other G10 peers but could become much more disorderly if the bullish driver shifts to the opposite end of the USD smile, where unexpected risk-off shocks trigger further demand for so-called "safe-haven" currencies like the USD.”
• “In our view, all of these factors would suggest the case to hedge USD upside risks for the rest of the year has materially grown for U.S. corporates.”
• “The combination of the current level of forward premiums and recent distribution of spot moves would favour hedging USD upside risks vs EUR, JPY, CHF, and CAD, in our view.”