07:24 AM EDT, 04/17/2024 (MT Newswires) -- The US dollar has outperformed all other G10 and G20 currencies for the recent month and year but any further gains would now likely require increased participation from real money buyers, according to BofA Global Research.

Hedge funds have built their largest US dollar long positions since before the onset of the coronavirus pandemic, according to BofA's weekly flows and positioning report, but interest from real money buyers has been more limited.

"We find the current USD positioning to be modestly long from slightly short at the start of the year," strategists at BofA Global Research said in a Wednesday note to clients.

They cited hedge funds' net US dollar long positions being at their highest level post-COVID. Those are the largest investor G10 FX positions, second only to hedge funds' New Zealand dollar shorts, they added.

Hedge fund positioning and recent signs that real money buyers have been returning US dollar markets are likely one of the reasons behind the recent outperformance of the greenback, the strategists said.

However, the stretched hedge fund position means that increased participation from real money investors is likely to be necessary for US dollar pairs to build further on the widespread gains notched up during the first quarter and opening weeks of April.

Switzerland's franc was the only currency in the G10 and G20 baskets to strengthen against the dollar during the week to Wednesday while the greenback appreciated against all G10 and G20 counterparts during the month to Wednesday.

The dollar has also remained the best performing major currency of the year in recent trade after being aided by a significant repricing of the outlook for interest rates at the Federal Reserve over the latest months.

Financial markets have shifted to price in only two interest rate cuts at the Fed this year, down from as many as six back in January, after official measures of inflation and other economic figures surprised consistently on the upside of expectations through the recent quarter.

American inflation figures continued to surprise on the upside of expectations when the March data was released last week.

Numerous Federal Reserve policymakers have said since then inflation is likely to be slower in returning sustainably to the 2% target than they had previously thought, and that this could delay the timing of any interest rate cuts in the US.

Chairman Jerome Powell was the latest to express such sentiments on Tuesday when telling the Wilson Center's Washington Forum that the March data means it's now likely to take longer than was previously expected for inflation to sustainably return to its target.