Bank of America Warns of Further Troubles Ahead for the US Dollar - Expert Analysis
As the US dollar stabilizes after a sharp fall in August, Bank of America Securities is predicting more challenges for the US currency. The Dollar Index, which tracks the greenback against a basket of other currencies, is currently trading lower at 101.077. Despite holding its course over the last week, the US currency is still down 1.6% for the month.
According to analysts at Bank of America Securities, the dollar's recent selloff was significant in historical context. Although the greenback has stabilized since then, the US bank remains bearish on the Dollar Index (DXY) for three key reasons.
Historical data shows that following bearish DXY breakouts, the index tends to continue its downtrend. In the last three analogs, the DXY index fell an average of 4% further before reaching a bottom. This analysis suggests that the USD downtrend is more likely to continue against the EUR, GBP, and AUD than against the SEK, NOK, and CHF in the G10.
While the DXY hit a new year-to-date low in August, broad USD trade-weighted indices have remained at Q4 2022 levels, indicating that the USD may still be overvalued. The recent USD selloff has been focused on European currencies, leading to DXY divergence from other USD indices.
Additionally, Bank of America noted that US 10-year Treasury yields tend to fall after the first Federal Reserve rate cut, and global financial conditions are expected to loosen further. This could result in more weakness for the USD as other central banks, particularly those that cut rates before the Fed, indirectly support global economies outside of the US.
In conclusion, the US dollar faces potential challenges ahead, according to Bank of America Securities. Investors should closely monitor the currency's performance against other major currencies and consider the implications for their portfolios. Stay informed and stay ahead in the ever-changing financial markets.