BofA says US dollar 'priced to perfection'

Analysts at Bank of America expect the US dollar to hit bottom during the first half of 2025 and afterwards weaken.

The Greenback was expected to be supported over the next "several months", on the back of America´s ongoing economic outperformance.

Investors were also expected to bid the dollar higher as they waited for clarity from the new US administration about a number of expected policy changes.

After that however, they said that "expectations for maximalist economic policy announcements appear well-priced in currency markets, whereas many of the growth implications are not."

Indeed, they judged it unlikely that ke policies would be carried out to the fullest extent.

The trend and so-called carry were also seen as possible favourable tailwinds on an eight to 26 week horizon.

Technicals were also favourable.

Yet their forecasts were calling for euro/dollar to rise to 1.1 by year-end 2025 and to 1.15 by the end of 2026.

The analysts also noted that positioning was still quite long, even if "economic and monetary divergence has justifiably kept the USD at elevated valuation levels."

They concluded that the US dollar had reached a "historically extreme value" and had been left trading at multi-decade highs in nominal and real terms, as well as versus estimates of what should be its equilibrium level based on a range of methodologies.