Investors are in love with dollar on Friday, according to Bank of America Corp. strategists.
The dollar made significant gains on Thursdays and Fridays while the two days have also seen the biggest selloffs for U.S. stocks as investors reduce risk before weekends, strategists including Howard Du wrote in a note to clients, using ICE’s dollar index as a proxy.
“In our view, investors are more reluctant to hold risky assets over the weekend due to (1) the on-going war in Europe, (2) the withdrawal of central bank liquidity increasing ‘price gap’ risks, which supports demand for the U.S. dollar,” the strategists said.
Conversely, they also noted the dollar tends to partially retrace on Wednesdays especially when there are Federal Reverse decisions and the market buys dollar ahead of expected hawkishness and “sells the fact” after, Du said.
Dollar is currently at multi year high against its largest peers after relentless surge. The yen on Monday dropped to its lowest since 2002 while the Euro declined amid the war in Ukraine has led to talk about about it falling to parity for the first time in nearly two decades.
The BofA strategists note that historically the U.S. dollar has tended to gain on Mondays. This year, it is still advancing at the start of the week but even more so at the end.
U.S. equity markets are seeing the opposite pattern to the dollar — typically falling on Thursdays and Fridays before retracing some of the end-of-week losses on Monday afternoons, according to BofA.