BofA thinks euro-dollar parity 'likely', recommends US investors hedge

Foreign exchange strategists at Bank of America Securities thought euro at parity against the US dollar was "likely".

As a result, their recommendation to US-based investors was to hedge foreign investments in 2022, saying that it was "imperative" that they do so.

"The decision to hedge foreign investment is imperative in 2022, given rising macro uncertainty. US-based investors should hedge foreign portfolios due to positive foreign equity to currency correlation and positive carry," analysts Claudio Piron, Athanasios Vamvakidis and Kamal Sharma said in a research report sent to clients.

For G-10 foreign investors on the other hand it was different, as the stronger dollar was partially offsetting equity losses, so they could leave their portfolios unhedged.

Against the backdrop of new multi-year highs in the Greenback, they said that the so-called 'USD smile' was providing strong tailwinds across all of G-10.

And with recession pressures intensifying, they believed that the last stalwarts of the Emerging Markets space were finally capitulating namely the Chilean peso, Colombian peso and South African rand.

They also said that they remained short the Chinese yuan against the US and Singapore dollars.

As an aside, their analysis of trading patterns by time zones showed that the US dollar had persistently tended to retrace its movements during afternoons on the eastern seaboard of the US, between 1300-1600 EST that is.