U.S. Dollar to Slide Further This Summer, Bank of America Warns

Bank of America issued a stark warning about the U.S. dollar’s prospects, predicting a challenging summer ahead. The dollar index, a key benchmark, has already experienced a significant decline of nearly 9%, falling to 99.74 this year. This weakening is largely attributed to President Trump’s tariff policies, which have spurred a shift away from U.S. assets. Bank of America anticipates this negative trend to continue throughout the summer, driven by ongoing economic data.

The bank’s global FX research team, led by Athanasios Vamvakidis, highlights the detrimental impact of tariffs on the U.S. economy. Given the country’s extensive global trade relationships, the negative consequences of tariffs are amplified. While acknowledging recent economic resilience fueled by factors such as tax cuts and a shift away from drastic fiscal spending cuts, the report emphasizes that negative factors currently outweigh the positives.

Persistent policy uncertainty remains a significant concern. Businesses are likely to postpone hiring and investment decisions until greater clarity emerges. The report projects tariff levels to rise significantly beyond their current levels, suggesting the current situation represents a minimum impact scenario. Furthermore, the report criticizes the loosening of fiscal policy amidst record-high debt levels, leading to increased borrowing costs. The Federal Reserve’s capacity to address these issues is constrained by rising inflation expectations.

The report also points to weakening high-frequency economic indicators, such as the ISM data and the weekly Dallas Fed economic index. The Dallas Fed index, after a brief surge in early April, has resumed its downward trend, reaching its lowest point since December. While acknowledging the inherent volatility of these indicators, the strategists suggest they foreshadow a potential economic slowdown in the coming months. The report also notes a decline in migration flows and a possible decrease in demand following an initial surge in anticipation of tariffs. This confluence of negative factors underscores Bank of America’s pessimistic outlook for the U.S. dollar throughout the summer. The weakening dollar, however, is generally considered bullish for dollar-denominated assets like gold and Bitcoin.