Bank of America Predicts Further U.S. Dollar Decline Amid Trade Tensions

Bank of America is signaling a challenging summer ahead for the U.S. dollar, following a steep drop so far this year that has investors watching closely.

The dollar index, which compares the greenback against a basket of major currencies, has fallen nearly 9% to 99.74 in 2025. This decline is largely attributed to the trade war initiated by President Donald Trump’s tariff policies, which have shifted global investor sentiment away from U.S. assets.

In a detailed report, Bank of America’s foreign exchange research team, led by Athanasios Vamvakidis, pointed out that tariffs are a major drag on the U.S. economy. Given the country’s extensive trade relationships worldwide, rising tariffs are expected to weigh heavily on growth.

While recent tax cuts and the avoidance of severe budget cuts have offered some support to the economy, the report stresses that uncertainty around trade policies and fiscal measures continues to dampen business confidence. Companies may postpone hiring and investment until there is more clarity on the direction of tariffs and economic policy.

The report also warns that current tariff levels likely represent just the starting point, with more increases expected. This escalation comes at a time when the government is loosening fiscal policy despite record-high debt, which is pushing borrowing costs higher. Meanwhile, the Federal Reserve’s ability to act is limited by rising inflation expectations.

Economic indicators such as the ISM manufacturing index and the Dallas Fed’s weekly economic activity index show signs of slowing momentum. The Dallas Fed index recently dropped to its lowest reading since last December after a brief rise in April, suggesting that economic growth may decelerate in the months ahead.

Though these indicators can be volatile, the overall outlook from Bank of America signals caution, with the U.S. dollar likely to face continued downward pressure through the summer months.