This summer, the dollar’s fate is unfolding like a suspenseful TV drama, full of plot twists. Everyone is watching to see whether inflation will emerge as the main villain or if its recent appearance was just a loud, fleeting cameo. The stakes are high, as summer data will determine whether tariffs reignite the inflation saga or give the Fed the long-awaited excuse to consider rate cuts again.
According to strategists at Bank of America, the ones who always seem to see just beyond the horizon, the US dollar has already slimmed down considerably in the first half of the year. This could be explained by geopolitical puzzles and currency confusion, where the US dollar unexpectedly ended up as the main recipient of risk.
Now all eyes are on the Fed. Investors, like diehard reality show fans, are glued to the screen: will inflation stage a dramatic comeback, or will the “dovish twist” of rate cuts steal the spotlight? So far, the data has been too mixed for the Fed to press the “ease” button confidently. As BofA hints, the finale may be just around the corner.
Meanwhile, the White House is pushing the Fed toward more generous decisions, hinting that lower rates could ease government spending burdens. However, that kind of pressure throws the Fed’s independence into question. As a result, the dollar is reacting with uncertainty.
Despite the cautious optimism voiced by Fed members Waller and Bowman, and Powell’s subtle nods to possible cuts if inflation stays offstage, BofA remains skeptical. Powell may have cracked the door open to brighter prospects, but he is certainly not throwing it wide.
Markets, for their part, are already pricing in about 28 basis points of cuts by September. However, BofA does not think that is enough to reverse the dollar’s decline. Analysts warn that any trimming of expectations is unlikely to rescue the dollar from its downward spiral.
Moreover, the dollar continues to weaken just as US stocks begin outperforming global peers. It is a curious divergence—falling greenback and rising equity markets.
Although inflation expectations remain in nap mode for now, BofA sees looming risks on the horizon. Namely, the real possibility that the Fed could act even without a clear trigger and cut rates simply because it can.
So, the coming months are not just shaping up to be a hot summer. They may turn into a full-blown economic thriller. Will the Fed stick to its hawkish script or cave under pressure? How will the dollar react - slide or soar? Time will tell.
