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USD: BofA Note Upside Risks For USD In Near-Term, More Cautious Further Into '25

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Bank of America note that “the USD has picked up in 2025 where 2024 left off - rallying on the dual themes of uncertainty over tariffs and the potential data-induced end to the Fed's cutting cycle.”

  • “We expect the Fed is most likely done, which for now remains USD supportive, but what next? If (limited) history is any guide, past "mid-cycle adjustments" have tended to be USD positive, but none occurred at such lofty USD valuations.”
  • “Talk of Fed hikes is likely to come but still feels premature to us.”
  • “Meanwhile, the USD's support comes despite the opposite move in rate differentials. A possible warning sign? As we have been noting, positioning is crowded and FX sentiment is increasingly consensus, exposing asymmetric risks. “
  • They continue to see “near-term USD upside risks but maintain the view that the USD will moderate around mid-year once U.S. economic policy choices become clearer.”
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Bank of America note that “the USD has picked up in 2025 where 2024 left off - rallying on the dual themes of uncertainty over tariffs and the potential data-induced end to the Fed's cutting cycle.”

  • “We expect the Fed is most likely done, which for now remains USD supportive, but what next? If (limited) history is any guide, past "mid-cycle adjustments" have tended to be USD positive, but none occurred at such lofty USD valuations.”
  • “Talk of Fed hikes is likely to come but still feels premature to us.”
  • “Meanwhile, the USD's support comes despite the opposite move in rate differentials. A possible warning sign? As we have been noting, positioning is crowded and FX sentiment is increasingly consensus, exposing asymmetric risks. “
  • They continue to see “near-term USD upside risks but maintain the view that the USD will moderate around mid-year once U.S. economic policy choices become clearer.”