Investing.com – The US dollar has stabilized after a sharp decline in August, but Bank of America Securities predicts more problems for the US currency.
At 07:20 ET (11:20 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, was trading 0.2% lower at 101.077, having largely held its course over the past week.
That said, the US currency is still down 1.6% this month.
The dollar’s selloff last month was notable in historical context, Bank of America Securities analysts said in a Sept. 5 note.
The dollar has stabilized since then, but despite the excessive weakness, the US bank still sees three reasons to remain bearish on the Dollar Index (DXY).
After similar periods of bearish DXY breakouts, the index has tended to continue its downward trend, the bank said.
In the last three analogues, the DXY index fell another 4% on average before bottoming out. Extending this analysis to bilateral USD/G10 pairs suggests that a continuation of the USD’s downtrend is more likely against the EUR, GBP and AUD than the SEK, NOK and CHF in the G10.
While the DXY hit a new year-to-date low in August, the broad nominal and real trading indices for the USD have remained at Q4 2022 levels, which could indicate that the USD remains overvalued.
The USD sell-off in 2024 has been concentrated in and other European currencies, leading to a divergence of the DXY against other USD indices.
The bank also noted that 10-year U.S. Treasury yields tend to decline after the first cut by the Federal Reserve, while global financial conditions are expected to ease further.
“The USD could experience more weakness as other central banks, especially those that cut policy rates before the Fed, can now afford to let the Fed do some of their work and indirectly support global economies outside the US ” said BoA.
