Investing.com – Bank of America released estimates of month-end rebalancing flows, warning of significant outflows from USD to EUR and emerging market currencies due to sturdy stock market performance and feeble bond returns in November.
US stocks, which account for the largest share of global portfolios, have gained 6% this month, while European stocks have fallen 3.2% and Chinese stocks have fallen 5.7%. U.S. bonds rose a modest 0.4%, contrasting with declines in bonds in Europe and Japan.
The difference in stock performance forces investors to rebalance their portfolios, leading to significant selling off of dollar assets as they adjust their portfolios to maintain a balanced mix of currencies.
“We are free to tactically decelerate USD growth in the near future in case of trend reversal signals,” the bank added, citing lower US yields and seasonal factors, including US holidays.
The bank also pointed to a potential inflow of funds into the Swiss franc (CHF), driven by sturdy growth on global stock exchanges. She highlighted that the Swiss National Bank (SNB) has vast equity holdings, particularly US equities, as a factor that increases the CHF’s sensitivity to month-end portfolio adjustments.
BofA expects selling to dominate, closely tied to the sturdy performance of equity indices such as .
While offsetting flows may have a fleeting negative impact on the USD, BofA noted that broader factors such as U.S. interest rates and central bank policy will ultimately shape the currency’s long-term path.
