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A major industry survey of fund managers shows a distinct cooling in enthusiasm for the Dollar.
Bank of America's FX and Rates Sentiment Survey shows a "cooling off on USD amid growth concerns & lack of faith in ongoing US exceptionalism."
Released Friday, the report shows the expectation amongst fund managers is for the Dollar to peak in the first quarter of 2025, as the peak in U.S. economic exceptionalism is at hand.
The U.S. economy has outpaced global peers since the pandemic, driving global investors into U.S. equities and fixed income, boosting the Dollar to multi-decade highs.
Respondents to the survey see a more complicated economic outlook, with the majority of respondents seeing Trump administration policies as inflationary and more than half seeing them as stagflationary.
Given this, U.S. bond yields are seen peaking at 5%, which diminishes fuel for the Dollar rally.
"Valuation and narrower rate differentials are now seen as the main potential USD headwinds," says BofA.
BofA says the survey shows diminishing faith in ongoing U.S. exceptionalism, with a plurality expecting it to fade and the USD to weaken.
Almost half of respondents say the Dollar index - a measure of broad USD performance - will peak in Q1, and around a quarter think that peak is in Q2.
Francesco Pesole, FX Strategist at ING Bank says peak dollar will emerge in the second quarter.
"We see the second quarter of this year as the time of peak US tariffs, with new layers to be added after the Commerce Department publishes a report as to why the US has been running structural deficits. This should come at a time when the European Central Bank is considering cutting rates sub 2% and may well send EUR/USD close to parity," he explains.
Image courtesy of Bank of America.