Investing.com — Bank of America has released an estimate of month-end currency rebalancing flows, warning of significant outflows from the USD into the EUR and emerging currencies, driven by strong stock performance and weak bond yields in November.
US stocks, which hold the largest share of global portfolios, rose 6% this month, while European stocks fell 3.2%, and Chinese stocks fell 5.7%. US bonds posted a modest gain of 0.4%, contrasting with declines in bonds in Europe and Japan.
The difference between stock performance is causing investors to rebalance their portfolios, leading to a significant sell-off in US dollar assets as they adjust their positions to maintain a balanced mix of currencies.
“We feel comfortable tactically mitigating the USD rally in the very near term based on trend reversal signals,” the bank added, citing lower U.S. rates and seasonal factors including U.S. holidays.
The bank also pointed to potential inflows into the Swiss franc (CHF), driven by strong global stock gains. It highlighted the Swiss National Bank’s (SNB) large equity positions, especially in US stocks, as a factor increasing the CHF’s sensitivity to month-end portfolio adjustments.
BofA expects sales to dominate, closely tied to the strong performance of stock indices such as the .
While rebalancing flows may temporarily negatively impact the USD, BofA noted that broader factors such as US interest rates and central bank policies will ultimately determine the currency’s longer-term path.
