BofA timezone analysis: US dollar buying during European hours was the theme

Bank
of America Global Research provides a recap of FX in 2022 through the
lens of time zone analysis. For this exercise, BofA split a 24-hour
day into 3 different time zones: Asian hours from midnight GMT to 8am GMT, European hours from 8am GMT to 1pm GMT, and American (US) hours from 1pm GMT to midnight GMT. BofA then calculated the cumulative return of the year for each time zone.

“Through 2022, Europe-based investors built a large inventory of long USD positions, which have likely not yet been fully capitulated. With the Fed inching close to terminal federal funds rate, we may see more USD supply during European trading hours in 2023,” BofA notes.

“Disaggregating daily FX spot movement into different time zones shows that the
USD rally vs. G10 FX from Q1 to Q3 2022 largely occurred during the
European trading hours. On the contrary, the USD sell-off in Q4 2022 was
driven by flows during the US trading hours. While
US-based investors aggressively sold the USD in Q4, price actions were
more muted during the European trading hours,” BofA adds.