“As the USD has rallied to our out-of-consensus
bullish forecasts, we expect it to remain strong. Four drivers have
supported the USD this year and we still see them in force.
1-The Fed is among the most hawkish central banks in G10, as it is dealing with high inflation in an overheating economy, while the rest are mostly trying to address second-round effects from negative shocks. 2-
The US is energy independent and its terms of trade have not
deteriorated as a result of high energy prices, particularly compared
with the Eurozone and Japan,” BofA notes.
The equities sell-off, to a large extent because of Fed policy
tightening, has supported the USD, even against JPY as we are still
seeing outflows from Japan to take advantage of carry. 4- China’s weak economy, as the country sticks to its zero-COVID policy,
and CNY weakness have supported the USD, particularly against EUR, as
the US is less dependent on China for its exports,” BofA adds.