Investing.com – U.S. investors are losing control over their own currency, with rising foreign demand the main driver, according to Bank of America Securities.
At 10:40 a.m. ET (1440 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was trading 0.1% lower at 105,000, but was still more than higher in 2024 than by 3%.
Riding the US dollar’s rally across US, European and Asian time zones, US Bank sees the dollar little changed during US trading hours, with the overall move having the highest correlation to hourly movements in Europe, followed by Asian ones this year clock movements. .
The rise in foreign demand for the dollar in 2024 is driven by a combination of favorable carryover and differences in U.S. growth rates, analysts at BoA Securities said in a June 10 note.
With the Fed’s more aggressive rate hikes over the past two years, the US dollar was already yielding higher than its G10 peers, and by 2024, rate-cutting cycles had begun widely among European central banks (European Central Bank, Swiss National Bank and The Riksbank cut the discount rate by 25 basis points.
In Asia, the Bank of Japan has exited negative interest rates, but yields remain low.
As a result, carry/volume ratios began to widen more in favor of the dollar this year.
Many US investors viewed the US economic soft landing as a reason for the dollar’s weakening. However, although the US growth rate in the first quarter of 2024 slowed sequentially to 1.3% from the outsized growth rate observed in the first half of 2023, the US still has the second fastest growth rate in the world. first quarter of 2024 in G10 (Exhibit 4).
Moreover, consensus estimates for economic growth in 2024 have increased more in the United States than elsewhere.
Naturally, the benefits of profitability and growth have attracted investors outside of America.
In addition, global investors increased investment in US AI stocks, and the resulting portfolio flows also supported the dollar.
“With US investors’ exposure to the US dollar at multi-year lows, more US dollar supply from Europe is needed to weaken the dollar,” the bank added.