Major Investment Banks Predict a Weaker Dollar
Fed Rate Cuts Expected to Put Pressure on the Greenback
Bank of America and Commerzbank share a common view that the US dollar is likely to enter a period of global weakness as the Federal Reserve moves toward interest rate cuts.
Analysts at Bank of America (BofA) state that as the Fed begins lowering interest rates, the cost of hedging against dollar weakness will decline. This, they argue, will make it easier for global investors to reduce dollar exposure, leading the US currency to lose value against most major currencies over the course of the year.
According to BofA, Fed rate cuts would further narrow US interest rate differentials. As a result, the cost of hedging US assets against a weaker dollar would fall. However, analysts note that relatively high hedging costs have so far remained one of the main obstacles to increased dollar-hedging activity, particularly throughout 2025.
BofA also highlights political factors as additional risks for the dollar. Efforts by the Trump administration to reduce housing-related costs could encourage further rate cuts, while potential threats to the Federal Reserve’s independence may pose longer-term challenges for the strength of the US currency.
Commerzbank Maintains Its Dollar Weakness Outlook
Commerzbank, meanwhile, observes that despite recent political turbulence originating from the White House, the US dollar has so far reacted only modestly. The bank argues that markets continue to underestimate the risks facing the dollar.
Maintaining its existing outlook, Commerzbank expects the dollar to gradually weaken over the remainder of the year.
Based on the bank’s latest projections, the euro is expected to strengthen against the dollar. Commerzbank forecasts the EUR/USD exchange rate to reach 1.19 by March 2026, 1.20 in June 2026, and 1.22 in both September and December 2026.
Looking further ahead to 2027, the bank anticipates the euro-dollar pair to stabilize, averaging around 1.21 in March and June, before easing slightly to 1.20 in September and December.
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