BofA: USD monitoring 2016 playbook post-2024 election, with scope for extra upside

BofA notes that the USD’s post-election appreciation in 2024 resembles the 2016 response, with related DXY features of round 2.eight% in opposition to G10 currencies, albeit with stronger alignment to price differentials this time. In 2016, the USD confirmed a better extra premium over price differentials, however immediately’s actions replicate shifts in relative development and coverage expectations. Upcoming commerce coverage readability might add to USD power if tariffs exceed expectations.

Key Factors:

• Comparative USD Appreciation: USD features post-2024 election mirror 2016’s, with an analogous DXY transfer (~2.eight%). Nonetheless, price differentials clarify extra of the present USD power in comparison with 2016’s extra premium.

• Fee Differential Impression: The DXY-weighted 2-year sovereign unfold has widened by 19bps, in comparison with 12bps in 2016, indicating that immediately’s USD rally is extra according to rate of interest spreads and development expectations.

• Commerce Coverage Uncertainty: Unclear commerce coverage specifics create scope for extra USD upside if tariffs exceed expectations, including a danger premium to present USD ranges.

Conclusion:

BofA sees the USD’s 2024 post-election trajectory intently following 2016’s sample, with USD power well-supported by price differentials and development dynamics. If anticipated commerce insurance policies lean extra aggressive, extra USD appreciation could observe, reinforcing bullish sentiment within the close to time period.

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This text was written by Adam Button at www.ubaidahsan.com.



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