BofA Says Dollar Swings to Rise as Data Returns After Shutdown

Volatility is set to return to foreign-exchange markets as US economic data resumes following the end of the record government shutdown, according to .

The dollar is more sensitive to global interest rates than at any point since the first quarter, Adarsh Sinha and Janice Xue wrote in a Thursday note, citing the ICE US Dollar Index’s relationship to two-year interest-rate spreads.

That means that as the US begins to release economic data again, the dollar is likely to fluctuate due to the difference in expectations for rates in the US against major foreign peers. Foreign-currency traders tend to favor countries with higher rates where returns are better.

“US rate differential volatility is likely to rise from recent lows as data releases resume,” the strategists said. “This raises the stakes for upcoming US data after the government shutdown ends.”

Gauges of currency swings have cratered in recent months as investors cautiously evaluate the contours of global tariffs and central bank monetary policies.

Among the drivers of that market calm, Bank of America argues, was a collapse in yield spreads as several central banks, including the European Central Bank, approached the end of their easing cycles. The record US shutdown, which ended this week, also delayed critical economic data and on the dollar, the world’s most heavily-traded currency.

The Bank of America strategists now see investor positioning on the dollar as more neutral relative to bearish levels seen as recently as October, albeit with large variations across the Group of 10.

The Bloomberg Dollar Spot Index fell Thursday for the sixth time in the past seven sessions, adding to steep losses this year.

According to the bank’s flow metrics, positioning on sterling screens as “extremely short,” for example, ahead of the release of the UK government’s . Traders appear to have crowded into longs on the yen, on the other hand, despite the Japanese currency’s persistent weakness.