Bank of America uses a time zone framework to examine the USD’s outlook for H2 2025, arguing that while the dollar has seen its worst start to a year since 1973, its downside from here could be more limited, especially during US trading hours.
Key Points:
US Trading Hours vs. Fed Pricing:
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Cumulative USD returns during US hours still have a +71% correlation with Fed rates pricing in 2025.
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With the Fed expected to keep rates unchanged for the rest of the year, this should moderately support the USD in US hours.
Asia-Based Selling May Pause:
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Asia-based investors were the biggest USD sellers so far in 2025.
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But after unwinding the cumulative long USD returns of the past two years, USD price action in Asia hours has turned flat.
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Investors in the Asia time zone may now wait for new bearish catalysts elsewhere before pushing the USD lower.
Europe Has Room for USD Weakness — But Needs Equities:
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USD downside in European hours depends on global equities outperforming US equities.
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After non-US equities outperformed in Q1, US equities regained leadership in Q2.
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Unless this reverses, European FX investors may lack conviction to drive further USD selling.
Hedging Incentives Decline:
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Foreign investors have less incentive to raise FX hedges on US assets given how much the USD has already depreciated this year.
Conclusion:
BofA’s time zone framework suggests the USD’s slide may slow in H2 2025, especially during US hours, as stable Fed policy removes a key catalyst for further losses. Asian flows may stay sidelined unless new global USD-negative catalysts emerge. The wildcard: global vs. US equity performance, which could drive fresh dollar weakness in European hours if the US stock market falters.
Bottom line: Don’t expect the same aggressive USD selling pace — but a selective bearish bias remains if global risk assets outperform.
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