07:16 AM EDT, 04/24/2024 (MT Newswires) -- Strong US dollar buying relative to all other major currencies is likely in this month's rebalancing of foreign exchange hedging ratios among asset managers, according to a Barclays model.

US equity and bond markets underperformed counterparts in Europe and elsewhere in the April to Wednesday, meaning asset managers might trim some of their currency hedges this month in order to keep hedge ratios constant.

This could lead to widespread dollar buying relative to all other major currencies between noon and 16:00 GMT on month-end, according to Barclays' month-end rebalancing model.

"Despite the global spillovers, the sell-off in the US equity market still dominated hedging flows because of its large market cap," said Sheryl Dong, a strategist at Barclays.

She said that has produced a strong dollar buying signal across all majors in April.

Major US equity indexes like the Dow Jones and S&P 500 each fell more than 2% in the month to Wednesday while the NASDAQ has declined by more than 4% following a further repricing of the market's outlook for the Federal Funds rate.

Meanwhile, the 20-year government bond yield rose 35 basis points to 4.94%, from 4.59% previously, and the 10-year yield added 38 basis points, climbing to 4.63% as prices fell across the curve during the month.

Losses have been larger than those seen in other developed and emerging markets while US market capitalizations are also larger, explaining why April's month-end rebalancing process could lead to an especially large wave of dollar buying.

"Policy divergence has warranted a stronger dollar month-to-date with crowded positioning on the long side, which may affect our assumption in hedge ratios. We caveat that this may dampen the strong buying signal for the dollar," Dong cautioned.

Strong retail sales, higher-than-expected inflation and robust growth in non-farm payrolls for March have all recently undermined earlier market-implied expectations for multiple interest rate cuts from the Fed this year.

The central bank's policy makers are scheduled to meet next week, with the CME Fed Watch Tool showing only a 1.9% probability of a cut from the current target rate of 5.25-5.50% at the May 1 meeting. That likelihood increases to 15% for a cut at the June 12 meeting.

Overnight Index Swap rates have shifted to price-in only two rate cuts from the Fed in 2024 during April, down from as many as six back in January, while the yield implied by the December Fed Funds futures contract rose to 4.98% during the month to Wednesday, from 4.59% on March 24.