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Bank of America Global Research makes the case for higher FX volatility for longer.
“A number of central banks have recently stressed
that monetary policy is data dependent and not on a pre-set path. This
is a natural consequence of policy rates being closer to neutral levels
and the uncertainty around the growth-inflation outlook. It also means
there will be a stronger correlation between economic data surprises and G10 FX, something that has been evident in recent months,” BofA notes.
“This sensitivity combined with multi-decade highs in cross-country economic divergence are likely to be associated with higher FX volatility for longer. The USD will remain strong until the Fed shifts more meaningfully from inflation to growth data dependence,” BofA adds.
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