Bank of America (BofA) provides its perspective on the current state of the U.S. economy, the renewed optimism surrounding it, and the implications for the U.S. dollar.
Key Takeaways
- Soft Landing Optimism:
- As Q3 begins, there's a surge in optimism about the U.S. economy achieving a "soft landing." This means slowing down without entering a recession, mainly driven by recent CPI data which suggests inflation might not be as enduring as initially thought.
- Impact on the USD:
- The newfound optimism and the potential for less aggressive action from the Fed have triggered a decline in the U.S. dollar (USD) at the start of H2. However, BofA maintains a bullish outlook on the USD.
- Cautious Approach:
- Despite the overall positive sentiment, BofA advises caution. They are skeptical about the rapid rate of disinflation and the evolving policy responses to tackle inflation.
- USD in H2:
- While acknowledging that the USD might be overvalued, BofA anticipates its appreciation in the latter half of the year.
Summary
Bank of America sees a buoyant mood surrounding the U.S. economy's prospects, as market participants hope for a smooth deceleration without a prolonged slump. This sentiment, coupled with recent favorable inflation data, has placed downward pressure on the U.S. dollar in the early days of the second half of the year. However, BofA recommends a cautious approach, questioning the pace of disinflation and the policy actions taken to combat inflation. Despite the prevailing narrative, BofA is bullish on the USD for the remaining half of 2023.
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