Investing.com – US investors are losing control of their currency, according to Bank of America Securities, with increased foreign demand the main driver.
At 10:40 EST (14:40 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was down 0.1% at 105,000, but was still higher by more than 3% so far in Year 2024.
Breaking down the US dollar's rise across US, European and Asian time zones, the US bank finds that the dollar is largely unchanged in US trading hours, with the overall movement having the highest correlation with European hour movements, followed by Asian hour movements this year. .
This increased foreign demand for dollars in 2024 was driven by a combination of positive spread and growth in the United States, analysts at BoA Securities said in a June 10 note.
On the back of more aggressive interest rate increases over the past two years, the US dollar already had a higher yield against its G10 peers, and so far in 2024, broad interest rate cutting cycles have begun among Europe's central banks (the European Central Bank, the ECB Swiss). The National Bank and the Riksbank each cut interest rates by 25 basis points).
In Asia, the Bank of Japan exited the negative interest rate regime but the yield level remained low.
As a result, transfer-to-volume ratios have widened in favor of the dollar this year.
Many US-based investors viewed the US economic “soft landing” as a reason for the dollar's fading strength. However, while the US growth rate in the first quarter of 2024 has declined sequentially to 1.3% from the huge growth rate seen in the first half of 2023, the US still has the second highest growth rate in the quarter 1st of 2024 in the G10 (Figure 4).
Furthermore, consensus growth revisions for 2024 have increased in the US more than elsewhere.
Naturally, the benefits of return and growth attracted investors outside America.
In addition, global investors increased their investments in US-based “AI” stocks, and the resulting portfolio inflows also supported the dollar.
The bank added: “With the influence of US-based investors on the US dollar reaching its lowest level in several years, more US dollar supply from Europe is needed for the US dollar to weaken.”
