(Bloomberg) — Investors’ status and views of the dollar are the most optimistic since 2015, buoyed by expectations that the Federal Reserve’s hawkish pivot will translate into higher rates, according to a survey by Bank of America Corp.
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The majority of respondents now expect the Fed to end its asset purchase program in the first quarter of 2022, pulling forward forecasts from the second quarter in the previous tally.
“Investors are focused on the Fed, however, still coming out with low final interest rate expectations, which is one of the reasons the curve has flattened so dramatically in this latest move,” wrote strategists Ralph Breuser and Miria Kiriakou.
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Survey respondents cited central bank tightening as the biggest risk to the market in 2022, followed by inflation and peak liquidity.
The dollar’s rise in 2021 comes before any central bank rate hike, with the Bloomberg Dollar Index on track for its strongest year since 2015. Conversely, most emerging market currencies have faltered: only three of the 24 currencies that follow have gained Bloomberg against the dollar.
In addition to shifting dollar bets, emerging market currency exposure turned negative for the first time since 2018. The strategists said the Federal Reserve’s December meeting still had room to push both centers forward, noting that attitudes had already changed and that Investors have reduced some portfolio risk.
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