BofA: A time zone analysis for the USD

Bank of America uses a time zone framework to examine the USD’s outlook for H2 2025, arguing that while the dollar has seen its worst start to a year since 1973, its downside from here could be more limited, especially during US trading hours.

Key Points:

US Trading Hours vs. Fed Pricing:

• Cumulative USD returns during US hours still have a +71% correlation with Fed rates pricing in 2025.

• With the Fed expected to keep rates unchanged for the rest of the year, this should moderately support the USD in US hours.

Asia-Based Selling May Pause:

• Asia-based investors were the biggest USD sellers so far in 2025.

• But after unwinding the cumulative long USD returns of the past two years, USD price action in Asia hours has turned flat.

• Investors in the Asia time zone may now wait for new bearish catalysts elsewhere before pushing the USD lower.

Europe Has Room for USD Weakness — But Needs Equities:

• USD downside in European hours depends on global equities outperforming US equities.

• After non-US equities outperformed in Q1, US equities regained leadership in Q2.

• Unless this reverses, European FX investors may lack conviction to drive further USD selling.

Hedging Incentives Decline:

Conclusion:

BofA’s time zone framework suggests the USD’s slide may slow in H2 2025, especially during US hours, as stable Fed policy removes a key catalyst for further losses. Asian flows may stay sidelined unless new global USD-negative catalysts emerge. The wildcard: global vs. US equity performance, which could drive fresh dollar weakness in European hours if the US stock market falters.

Bottom line: Don’t expect the same aggressive USD selling pace — but a selective bearish bias remains if global risk assets outperform.

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