BofA Predicts Stronger U.S. Dollar Amid Currency Rebalancing
Bank of America (BofA) analysts have revised their long-term forecasts for the U.S. dollar, now anticipating a stronger performance through the end of 2025. This adjustment follows the U.S. election results, which have prompted a shift in consensus among currency forecasters. Previously bearish on the U.S. dollar for the remainder of 2024, the consensus has now turned more bullish. The year-end median forecast for 2025 now predicts only a modest rise in the EUR/USD to 1.05, contrasting with the 12-month EUR/USD forwards average of 1.0679 observed over the past month. Additionally, BofA has highlighted significant currency rebalancing needs that could lead to a robust rebound for the U.S. dollar. Their research suggests an expected shift in investment flows into dollar-denominated assets, particularly equities, which have underperformed compared to their European counterparts. This anticipated rebalancing is based on the conventional 60/40 portfolio model, commonly used by financial institutions to maintain a balanced allocation between equities and fixed income instruments.
BofA's analysis indicates an underperformance of dollar assets relative to EUR assets, suggesting a substantial rebalancing inflow into the dollar. These insights underscore the evolving dynamics in currency markets and the potential for a stronger U.S. dollar in the near term.
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