Bond.az -- Shifting fixed income dynamics have established currency carry strategies as the dominant theme for G10 FX, according to BofA Securities.
The macroeconomic backdrop focuses on persistent global inflation risks over stagflation.
Strong US macro data has pushed projected Fed rate cuts to 2027.
Taylor Rule models suggest global policy rates need further tightening.
BofA calculates that monetary policy remains too accommodative in the UK, US, and New Zealand.
Central banks are hesitant to hike aggressively against supply shocks, opting for modest tightening to limit recession risks.
G10 currency returns are now dictated by rate differentials, not spot moves.
The US dollar has benefited from the domestic rate rally.
The Norwegian krone is a top performer in carry trades against the dollar.
The US-Iran conflict poses downside risks, but FX markets price policy trajectories beyond geopolitics.
BofA strategists note the British pound could find support from growth upgrades if political noise subsides.
