The US dollar has stabilized after a sharp decline in August, but Bank of America Securities sees more trouble ahead for the greenback.
At 07:20 ET (11:20 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was down 0.2% at 101.077, having largely held its course over the past week.
However, the US currency is still down 1.6% on the month.
Last month’s dollar selloff came in a historic context, analysts at Bank of America Securities said in a note dated Sept. 5.
However, despite the significant weakness, the US dollar has since stabilized, and the US central bank still sees three reasons to remain bearish on the Dollar Index (DXY).
The bank said the index is likely to continue its downward trend after similar episodes of bearish declines for the dollar index.
In the last 3 peers, the US Dollar Index has fallen another 4% on average before bottoming out. Extending this analysis to the USD/G10 pairs suggests that a continuation of the USD downtrend is more likely against the EUR, GBP and AUD than against the SEK, NOK and CHF in the G10.
While the US Dollar Index hit its lowest level since the beginning of the year in August, the broad nominal and real trade indicators for the US Dollar remained at Q4 2022 levels, indicating that the US Dollar remains overvalued.
The US dollar sell-off in 2024 was concentrated in other European currencies, causing the US dollar index to diverge from other US dollar indices.
The bank also noted that the yield on the 10-year US Treasury note is set to decline after the first rate cut by the Federal Reserve, while global financial conditions are set to improve further.
“The US dollar could see further weakness as other central banks, especially those that cut rates before the Fed, are able to allow the Fed to do some of its work and indirectly support global economies outside the US,” Bank of America added.