Investing.com — The U.S. economy has had a painful encounter against the dollar this year, but could see some near-term reprieve if the Federal Reserve’s dollar weakness strikes again after December.
“Since 1999, the DXY index’s return for the remainder of the year after the December FOMC has been negative 64% of the time,” Bank of America analysts said in a recent note.
This seasonal dollar weakness could provide some relief for the euro, which has been under pressure against the dollar for much of the year.
However, any potential reprieve could be short-lived as “January seasonality tends to be more bullish for the USD, with the DXY index higher 60% of the time,” the analysts said.
Looking ahead to 2025, the bank outlined two possible scenarios for the EUR/USD pair:
In a base case scenario where the dollar consolidates after the FOMC meeting, the analysts suggest that “USD bulls could consider early Jan ’25 OTM EURUSD digi puts at better price levels.”
But if the FOMC’s Summary of Economic Projections – which will be released along with the Fed’s rate decision on December 18 – is more aggressive than current market expectations for rate cuts in 2025, the dollar could end the year stronger. In this case, “EURUSD put spreads would be preferable,” the analysts said.
