• BofA Global Research maintains its long-term bearish stance on the U.S. dollar, even as this view gains broader acceptance.
  • Short-term upside risks include strong U.S. economic data and potential easing of trade tensions, but these are seen as temporary.
  • Analysts recommend treating any dollar rallies as selling opportunities absent major policy shifts.

A Contrarian Holdout in Currency Markets

BofA Global Research is doubling down on its bearish outlook for the U.S. dollar, positioning itself as one of the few major holdouts maintaining this stance as it becomes more mainstream. The bank acknowledges near-term risks that could push the greenback higher, including surprisingly resilient U.S. economic indicators and what analysts describe as "balanced" fiscal policy coming out of Washington.

"We see these factors as transient rather than structural," said a senior currency strategist at BofA who asked not to be named discussing internal research. "Unless we get dramatic policy shifts or economic surprises, we'd view dollar strength as an opportunity to sell."

The bank's position comes amid mixed signals from currency markets. While the dollar index has shown recent strength, climbing 1.2% over the past month, BofA analysts point to underlying vulnerabilities including stretched valuations and simmering trade tensions that could reemerge as headwinds.

The Fed Factor

Monetary policy looms large in BofA's analysis. The bank expects the Federal Reserve to implement two quarter-point rate cuts in 2025, a trajectory that would typically weigh on the dollar. This contrasts with some competitors who see the Fed holding steady or even tightening if inflation proves stubborn.

BofA's fixed income team projects the 10-year Treasury yield will trade in a 4-4.5% range next year, suggesting limited upward pressure on the dollar from bond markets. "The rates picture just doesn't support sustained dollar strength," the strategist added.

Traders report increasing client interest in hedging dollar exposure, particularly among multinational corporations concerned about earnings translation effects. "We're seeing more two-way flow now than at any point this year," said a senior FX trader at a major European bank.

Global Crosscurrents

The bank's bearish dollar call comes alongside a relatively optimistic view of other assets, including a record year-end 2025 S&P 500 target of 6,666. Some clients question whether both positions can prove correct simultaneously.

"It's not necessarily contradictory," the BofA strategist countered. "We see U.S. equities rising on earnings growth rather than multiple expansion, which can happen alongside dollar weakness."

The bank declined to provide specific dollar index targets but indicated its models show meaningful downside potential against both developed and emerging market currencies over a 12-18 month horizon.