Bank of America uses a time zone framework to examine the USD’s outlook for H2 2025, arguing that while the dollar has seen its worst start to a year since 1973, its downside from here could be more limited, especially during US trading hours.
Key Points:
US Trading Hours vs. Fed Pricing:
Cumulative USD returns during US hours still have a +71% correlation with Fed rates pricing in 2025.
With the Fed expected to keep rates unchanged for the rest of the year, this should moderately support the USD in US hours.
Asia-Based Selling May Pause:
Asia-based investors were the biggest USD sellers so far in 2025.
But after unwinding the cumulative long USD returns of the past two years, USD price action in Asia hours has turned flat.
Investors in the Asia time zone may now wait for new bearish catalysts elsewhere before pushing the USD lower.
Europe Has Room for USD Weakness — But Needs Equities:
USD downside in European hours depends on global equities outperforming US equities.
After non-US equities outperformed in Q1, US equities regained leadership in Q2.
Unless this reverses, European FX investors may lack conviction to drive further USD selling.
Hedging Incentives Decline:
Foreign investors have less incentive to raise FX hedges on US assets given how much the USD has already depreciated this year.
Conclusion:
BofA’s time zone framework suggests the USD’s slide may slow in H2 2025, especially during US hours, as stable Fed policy removes a key catalyst for further losses. Asian flows may stay sidelined unless new global USD-negative catalysts emerge. The wildcard: global vs. US equity performance, which could drive fresh dollar weakness in European hours if the US stock market falters.
Bottom line: Don’t expect the same aggressive USD selling pace — but a selective bearish bias remains if global risk assets outperform.
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This article was written by Adam Button at www.forexlive.com. Read More Details
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