The banking giant’s strategists emphasize that volatility in exchange rates tends to increase during the easing of monetary policy, which is why they suggest that investors adopt positions as a hedge.
Bank of America strategists are predicting a year full of turmoil in the currency markets As the Federal Reserve initiate interest rate cuts.
In its latest report, the bank advises investors to consider defensive strategies, such as purchasing currency options, which can gain value amid increasing market swings.
The financial giant’s strategists highlight an unusual gap between the ICE BofA MOVE index, which measures volatility in the Treasury bond market, and the CVIX, which tracks expectations of monetary swings. Based on their analysis, they predict that these two volatility measures will inevitably converge in the coming period.
Dollar: the BofA projection
In their note, the strategists warn of the decline in the traditional role of rates as the main buffer throughout 2024, as the Fed implements measures to make its monetary policy more flexible. This transition could generate significant changes in the markets, especially in currencies.
Since the foreign exchange markets have experienced a certain depression, exchange rate options are currently considered relatively affordable.
This presents an attractive opportunity for investors looking to protect their portfolios amid uncertainty. Bank of America strategists highlight that volatility in exchange rates tends to increase during Fed rate cuts, and suggest that investors Consider covering yourself against electoral risk in the United States.
“We observe a space of relatively affordable exchange rate volatility and we see scope for clients to implement hedging strategies“Bank of America experts noted in their report.
In summary, 2024 is presented as a year where caution and adaptability will be key in the dynamic world of currencies.
Source: Ambito
I am a 24-year-old writer and journalist who has been working in the news industry for the past two years. I write primarily about market news, so if you’re looking for insights into what’s going on in the stock market or economic indicators, you’ve come to the right place. I also dabble in writing articles on lifestyle trends and pop culture news.
