The U.S. dollar faced a sharp decline on Monday, dropping over 1% after the announcement of a “universal tariff” plan by the new U.S. administration. The move has sparked speculation about whether the dollar is entering a prolonged downtrend, reminiscent of its consistent decline during President Trump’s first year in office in 2017.
However, analysts at Bank of America (BofA) remain cautious, stating there is insufficient evidence to confirm a lasting downtrend for the dollar.
Following the selloff, the dollar index (DXY), which tracks the currency’s performance against a basket of major counterparts, fell to 108. This level is seen as a near-term equilibrium, influenced by the Federal Open Market Committee’s (FOMC) hawkish stance in December 2024. In a report dated December 18, BofA characterized the FOMC’s decision as “an unabashedly hawkish cut.”
Looking forward, the U.S. dollar could regain strength depending on the outcome of the December payrolls report, scheduled for release this Friday. According to BofA’s January 6 report, “Labor Market Watch,” a robust labor market could challenge expectations for Federal Reserve rate cuts in 2025, potentially lifting the dollar.
Market participants are now closely watching the upcoming employment data for further clues on the dollar’s trajectory. A strong jobs report may help counter the recent bearish sentiment, providing support for the currency in the short term.
In conclusion, while the dollar’s decline has raised questions about its future direction, BofA analysts emphasize that one day’s movement is not sufficient to signal a long-term trend.
