Investing.com — Yields are likely to continue to outpace their G10 rivals in the coming months, supported by economic strength, before falling in the second half of 2025 as investors reassess the impact of the election and the Fed implements more rate cuts, analysts at BofA said in a recent note.
“We are primarily looking for continued support for the dollar over the coming months, thanks to continued economic outperformance in the US, as we await further clarity from Washington on some expected policy changes,” BofA analysts noted.
The dollar’s trajectory is likely to shift in the second half of 2025 as the pricing momentum in a pro-growth economy wears off under a second Donald Trump administration. “Further ahead, however, we see USD strength eventually starting to moderate this year as well,” the analysts said.
They expect the dollar to weaken because the market has already priced in expectations for maximalist economic policy announcements, while many growth implications have not yet been priced in.
While the narrative of “American exceptionalism” has boosted the dollar’s strength, there is room for normalization as Washington provides more clarity on policy, she added.
Analysts’ call to soften the dollar is based on a softer landing for the US economy next year, with conditions paving the way for further Fed cuts. The analysts expect this will ultimately boost a moderation in dollar strength in the second half of 2025, after trading close to current levels through mid-year.
