• Dollar positioning shifts to least underweight since March 2025, according to Bank of America's June fund manager survey.
  • Only 34% of investors now view the dollar as overvalued, down sharply from 50% in May.
  • The shift reflects growing expectations that the Fed may hike rates again, supporting the greenback.

Investors have modestly increased dollar allocations in June, signaling a shift toward potential U.S. rate hike expectations and a perception that the dollar may remain supported near-term. Bank of America's latest fund manager survey shows net dollar positioning moved to just 3% underweight, the least bearish since early 2025. The findings come as traders weigh policy guidance and inflation dynamics ahead of the Fed's next decision.

"The data suggests a pivot in sentiment," a fund manager surveyed by BofA said, speaking on condition of anonymity. "Many of us were heavily short the dollar, but with inflation sticky and the Fed signaling higher-for-longer, it's time to rethink." The survey, conducted June 5-11, captured responses from 250 panelists managing a combined $750 billion in assets.

The reduced bearishness is underpinned by a dramatic shift in valuation views: only 34% of respondents now consider the dollar overvalued, compared with 50% in May. This aligns with the dollar's resilience this year, as the currency has gained 2.5% against a basket of major peers despite earlier expectations of a sustained decline.

Policy expectations remain the key driver. Market pricing now implies roughly a 30% chance of a quarter-point rate hike by September, according to CME FedWatch, up from negligible odds in April. A higher-for-longer Fed stance tends to strengthen the dollar by widening yield differentials, particularly against the euro and yen.

Still, the outlook is far from uniformly bullish. Cash allocations in the survey rose to 4.1% from 4.0%, indicating cautious positioning overall. "The dollar may find support near-term, but we see limits to further strength unless the Fed actually delivers a hike," said a currency strategist at a European bank.

Correction: An earlier version of this article misstated the survey period. The BofA survey was conducted June 5-11, not June 1-7.