Key Takeaways
- 💵 Bank of America Securities expects modest US dollar downside going into 2025
- 📉 US dollar is seen as moderately overvalued but Fed rate cutting cycle would help attenuate overvaluation
- 📈 Bank forecasts EUR/USD to rise, with end-2024 at 1.12 and end-2025 at 1.17
- 🔜 BoA expects more USD downside with disinflationary trends and softening labor market
- 💸 Expected rate cuts of 50 bps in November and 25 bps reduction in December
- 🌍 Global economic uncertainty is contributing to the Fed’s decision to lower interest rates
- 📈 Investors should monitor currency markets for potential shifts in response to the Fed’s actions.
Federal Reserve Expected to Weaken US Dollar in Coming Years
The US dollar has been deemed as moderately overvalued, but Bank of America Securities anticipates a modest downside as we head into 2025. This movement is largely attributed to the Federal Reserve’s rate-cutting cycle, which is expected to help attenuate the overvaluation of the currency.
Bank of America forecasts a rise in the EUR/USD exchange rate, with the euro potentially reaching 1.17 by the end of 2025. This projection aligns with the expectation of more USD downside due to disinflationary trends and a softening labor market. As a result, market analysts are closely monitoring the impact of anticipated rate cuts, which include a 50 basis points reduction in November followed by a 25 basis points reduction in December.
Global economic uncertainty further underscores the Fed’s decision to lower interest rates, signaling a potential weakening of the US dollar in the near future. Investors are advised to keep a watchful eye on currency markets for any shifts that may occur in response to these actions.