Bank of America sees more downside for the dollar via Investing.com

Investing.com – The US dollar has stabilized after a sharp decline in August, but Bank of America Securities sees more trouble ahead for the US currency.

At 07:20 ET (11:20 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, traded 0.2 percent lower at 101,077, largely unchanged in the last week.

That said, the US currency is still down 1.6% on the month.

Last month’s selloff in the dollar stood out in a historic context, according to analysts at Bank of America Securities in a Sept. 5 note.

The greenback has since stabilized, however, despite the huge weakness, the US bank still sees three reasons to remain bearish on the dollar index (DXY).

Following similar episodes of DXY breakouts, the index tended to continue its downtrend, the bank said.

Over the past 3 analogs, the DXY index fell an average of another 4% before bottoming out. Extending this analysis to USD/G10 bilateral pairs suggests that continuation of USD’s downtrend against EUR, GBP and AUD is more likely than SEK, NOK and CHF in the G10.

While the DXY hit a new low year-to-date in August, broad nominal and real USD-weighted indices remained at Q4 2022 levels and would suggest the USD remains overvalued.

USD selling in 2024 was concentrated in other European currencies as well, leading to a DXY divergence from other USD indices.

The bank also noted the downward trend in US Treasury yields 10 years after the Federal Reserve’s first rate cut, while global financial conditions will ease further.

“The USD could see more weakness as other central banks, particularly those cutting policy rates ahead of the Fed, can now afford to let the Fed do some of their work and indirectly support global economies outside USA,” BoA added.