The U.S. Dollar Index (DXY) saw robust demand throughout 2024, particularly against emerging market currencies (EMFX), according to a recent report by BofA Global Research. Investors ended the year with significant long positions in USD, driven by a pronounced short stance on EMFX, especially in the fourth quarter. "USD-EM FX demand stood out in Q4," BofA analysts noted, highlighting the stretched positioning of hedge funds, which were heavily long on USD and short on EMFX.
In the G10 space, the market favored USD and AUD, while CAD, NZD, and CHF were shorted. The report also pointed out that official flows supported EURUSD, countering the USD rally in Q4. In emerging markets, investors were notably short in Asia and Latin America, with the Brazilian real (BRL) facing aggressive selling due to fiscal concerns. "The market turned even more bearish on BRL," the report stated, despite its undervaluation and high real rates. As 2025 begins, the positioning landscape suggests continued USD strength, particularly against EMFX, as investors navigate complex global economic dynamics.