Bank of America has a negative view on the dollar, even with a temporary peace between the U.S. and China. The recent rise in the dollar is seen as a short-term adjustment, not a sign of lasting improvement, as many challenges remain for the currency. Policy uncertainty continues, and the easing of trade tensions is expected to be brief. Unpredictable policies could create more volatility as deadlines and tariff suspensions approach. The U.S. economy is growing more slowly than before the trade war, mainly due to delayed investments and a drop in business confidence, which is hurting the economy. The U.S. current account surplus is getting smaller, leading to fewer investment inflows and weakening support for the dollar. Institutional investors are reconsidering their investments in U.S. assets, which may result in continued capital outflows. Fiscal uncertainty poses risks for long-term Treasury issuance and inflation expectations. The Trump administration’s preference for low interest rates and a weaker dollar continues to put downward pressure on the dollar over time. Bank of America believes these ongoing issues, such as low capital inflows and uncertain policies, will keep pushing the dollar down in the medium term. Looking at recent events, it’s clear that monetary positioning is changing. The dollar’s recent strength seems more like a temporary blip rather than a lasting trend. The short-term rise appears driven by fleeting optimism around trade talks, not a strong foundation for a turnaround. While the temporary ceasefire on tariffs has eased some worries, the broader reality remains one of hesitation. Traders focused on the long term are likely to stay cautious. Without clear resolutions and with deadlines approaching, instability could return quickly. We are far from resolution. In terms of macro conditions, economic momentum is weak. Business growth has slowed—companies are holding onto cash, investments are low, and hiring is on hold. This suggests that global uncertainties are affecting business sentiment. Prolonged caution like this can create ripple effects in the market, making it challenging to take clear positions. External balances also matter. With the current account decreasing, there is less demand for dollars, which means weaker structural support. If global investors look for better returns elsewhere, the dynamics of asset flows could push prices down more than expected. The fiscal situation carries potential risks too. Ongoing discussions about the amount of Treasury issuance needed to cover growing deficits raise questions about yields. If interest rates trend down, inflation protection will become increasingly important. This situation encourages caution for those managing investments across different securities. Demand for inflation protection is rising, implying skepticism about the disinflation narrative. From the insights of Harris and his team, the general trend still leans toward dollar weakness. They’re focused on long-term imbalances, as we are. Capital tends to flee when there is uncertainty, especially if other options seem more stable or offer clearer political conditions. The key takeaway? Don’t assume that recent stability means a shift in direction. Bid-ask spreads are tightening, but confidence among dollar bulls seems weak. Many traders are reacting to events rather than establishing long-term positions, and we believe this will persist until we have clearer information on spending plans, interest rate policies, and global central bank actions. For now, we are concentrating on market levels, keeping our positions small, and avoiding excessive risk—particularly in pairs strongly influenced by U.S. fiscal or trade issues. The focus may shift toward short positions if data changes or if Treasury supply exceeds expectations. Keep an eye on those auction results.

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