Bank of America has warned that the U.S. dollar could be in for a rough summer, having already dropped sharply this year.
The dollar index, which tracks the value of the U.S. dollar against major currencies, has dropped nearly 9% to 99.74 this year, as President Donald Trump’s tariff war triggered a shift away from U.S. assets.
Bank of America expects continued data-driven drubbing over the Summer. Weakness in the U.S. dollar is widely seen as positive for dollar-denominated assets, such as gold and bitcoin
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The global FX research team led by Athanasios Vamvakidis stated in a report to clients Friday that tariffs are more detrimental to the U.S. economy as the country trades more with the rest of the world than perhaps any other nation.
The report acknowledged recent resilience in the U.S. economy and growth-supportive developments, such as President Donald Trump’s tax cuts and the abandonment of extreme fiscal spending cuts, but stated that “negatives dominate.”
“Policy uncertainty on multiple fronts remains. Companies may pause hiring and investment plans until there is greater clarity. In most scenarios, we see tariffs much higher than the starting point, with current levels being the minimum,” the report said.
It added that the market is reacting negatively to the loosening of fiscal policy at a time when debt levels are at record highs, leading to higher borrowing costs. Meanwhile, the Federal Reserve is unable to take significant action due to rising inflation expectations.
“Migration flows have collapsed. Demand increased in Q1 [front running] ahead of tariffs but may be about to fall,” strategists noted, pointing to weakness in high-frequency indicators such as the ISM data and weekly Dallas Fed economic index.
The weekly Dallas Fed economic index has resumed the downtrend following the brief spike in early April and hit the lowest since December, according to data source TradingView.
“Such high-frequency indicators tend to be very noisy but could still point to a slowdown of the economy in the coming months,” strategists said.
