On Monday, the US dollar experienced a major sell-off, falling more than 1% following the announcement of a “universal tariff” plan by the new US administration. Investors are wondering whether this could signal the start of a trend similar to 2017, when the dollar steadily declined during President Trump’s first year in office.
However, analysts at Bank of America (BofA) believe that there is not enough evidence to declare the start of a bearish trend for the US dollar.
The immediate market reaction caused the DXY index, which measures the dollar against a basket of other major currencies, to fall to 108. This level is considered a short-term balance for the dollar, especially after the hawkish position adopted by the Federal Open Market Committee (FOMC) in December 2024.
The FOMC’s decision was called a “decidedly hawkish cut” in a BofA report dated December 18, 2024.
Looking ahead, the US dollar could see renewed strength ahead of the release of the December jobs report this Friday. BofA’s “Labor Market Watch” report, dated January 6, 2025, suggests that a strong labor market could lead to a reassessment of expectations for possible Federal Reserve rate cuts in 2025.
Investors and market participants are now gearing up to focus on the upcoming employment data for further guidance. It is expected that a strong jobs report could counter the immediate bearish sentiment and support the value of the dollar in the near term.
In summary, although the recent selloff has raised questions about the dollar’s trajectory, BofA maintains that a single day’s movement is not indicative of a longer-term trend.
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