Bank of America uses a time zone framework to predict the USD’s performance for the second half of 2025. Although the dollar has had a shaky start this year, its decline may slow down, especially during US trading hours. During US hours, there is a strong 71% connection between USD returns and the expected Fed rates for 2025. With the Fed likely to keep rates stable for the remainder of the year, this could support the dollar during US trading times. In Asia, USD selling has been driven by investors closing long positions built over the past two years, resulting in a flat trend during Asian hours. These investors may stop selling USD unless new negative news emerges globally. In Europe, the dollar’s weakness will rely on global stocks performing better than US stocks. While international equities outperformed US stocks in the first quarter, US stocks took over in the second quarter. This affected European investors’ views on selling USD. Foreign investors are less interested in increasing foreign exchange (FX) hedges on US assets because of the dollar’s drop this year. Overall, while BofA’s framework suggests slower USD declines, the performance of global versus US equities could further weaken USD during European hours. This analysis highlights a trading strategy focused on when currency movements happen, not just where. Bank of America has created a time-based framework to predict the US dollar’s performance through 2025. It shows which trading hours typically influence the dollar’s value. This model doesn’t indicate a long-term trend change but emphasizes timing, which is crucial for short-term strategies. During US market hours, there is a strong 71% correlation between the dollar’s direction and expectations of what the Federal Reserve may do next year. Since the Fed is expected to keep its rates steady for the rest of the year, this stability can lead to a stronger dollar during US trading. With less volatility in rates, day-to-day movements based on new Fed comments or unexpected changes are likely to be limited. This makes timing exposure during these hours important. Asian market hours show a different trend. Investors have been gradually closing their bullish dollar positions from the past few years. Once this unwinding is complete—likely soon—the pressure to sell dollars during Asian trading should lessen. However, if broader market risks arise, we could see renewed USD selling. Without that, the momentum appears to have slowed. In Europe, the dollar reacts more to how stock markets outside the US perform compared to US benchmarks like the S&P 500. Earlier this year, global equities, especially in emerging markets and core Europe, briefly outperformed US stocks. However, US stocks regained their strength in the second quarter. This means European investors have less reason to move away from dollar holdings. There is significantly less eagerness among foreign investors to hedge US-denominated assets back into local currencies. The dollar’s gradual decline this year hasn’t created a strong demand for protection—hedging costs are high, and performance buffers are limited. This weakens a previously consistent source of USD selling, especially when bond yields outside the US don’t offer enough compensation. Given this framework’s insights into trading hours, we focus on where intraday flows gather. Planning positions ahead of Asian or European hours for short-term trends seems less effective without new catalysts. However, strategies during US hours linked to rate expectations remain useful. It’s important to monitor equity rotation trends—especially whether US tech stocks outperform international industrials—as this can guide exposure adjustments. In the coming weeks, the focus should shift from the dollar’s long-term direction to understanding who drives markets and when.

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