Synopsis:

BofA anticipates a bifurcated USD trajectory in 2025, with strength persisting in H1 due to US inflationary policies, particularly tariffs, followed by potential weakness in H2 as these policies weigh on the US economy.

Key Points:

1. H1 Strength:

   • USD strength is expected to continue in the first half of 2025, driven by US inflationary policies, including tariffs.
   • These policies bolster near-term USD demand but introduce longer-term risks.

2. H2 Weakness:

   • The dollar is likely to weaken in the second half of the year as the economic impact of US policies materializes.
   • Global responses to US policy measures could further erode USD strength.

3. Policy Uncertainty:

   • The exact timing and magnitude of USD movements hinge on the evolving details of US policies.
   • Significant uncertainty around policy implementation introduces substantial risks to the baseline outlook.

Conclusion:

BofA foresees 2025 as a "year of two halves" for the USD, with initial strength giving way to potential H2 weakness as the economic effects of US policies unfold. Substantial risks surround this outlook due to policy uncertainty.