Rising prices are supporting , and recent increases in commodity barrel prices pose greater risks for those expecting a global decline in the U.S. currency by the end of the year. Bank of America (BofA) made the announcement in a memo to customers and the market on Wednesday.
“We argue that the policy response to inflation is likely to have amplified the USD-positive effect of the recent supply-driven oil shock,” the bank said in the document.
Currency strategists John Shin and Alex Cohen said: “Over the longer term, a positive impact on oil prices on the US terms of trade could mean that USD upside risks become more persistent.'' There is,” he added.
Strategists said the supply nature of the oil shock, which in the central bank's view is more linked to supply conditions such as Russia's invasion of Ukraine and concerns about unrest in the Middle East, also supported the dollar.
“Not only does a rise in oil prices end up supporting a stronger US dollar through the dynamics surrounding high inflation, but supply shock conditions also typically represent a general risk-off environment that favors a stronger US dollar. ” they observed, adding the Federal Reserve's view. Restrictive monetary policy helped amplify the impact. The bank noted that during energy price increases in 2008 and 2011, the European Central Bank (ECB) raised interest rates, pushing up the euro, although the Fed decided to assess the impact on inflation. I'm reminiscing.
The bank's strategists said that while the nature of the shock may be temporary, given the economic benefits, “a change in relationship with the U.S. economy means that, apart from cyclical surprises, oil remains weak across the board.” “This is likely to continue to be a positive factor for the US dollar.” These increases take into account the U.S. terms of trade.
BofA expects the dollar to weaken over the medium term, with its year-end forecast at $1.15 in anticipation of a U.S. interest rate cut, but warns of the risk of the dollar rising against the backdrop of soaring oil prices.
