BofA Recommends Staying Long US Dollar Into Third Quarter
1h ago|4 min readStandard
Fazen Markets Editorial Desk
Collective editorial team · methodology
us-dollarbofa
Fazen Markets Editorial Desk
Collective editorial team · methodology
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Bank of America told clients on June 28, 2026, that they should remain long the US dollar into the third quarter. The bank’s foreign exchange strategists reiterated their bullish stance as the dollar index traded near 105.50, up 3.2% year-to-date. This positioning reflects confidence in the greenback’s relative strength against major peers like the euro and yen.
The US dollar has been the dominant currency in global foreign exchange markets for the past decade. The last time a major US bank advocated for a sustained long-dollar position into a new quarter was in Q1 2023, as the Federal Reserve led the G10 in raising interest rates. The current macro backdrop features a US Federal Reserve funds rate at 4.50%, contrasted with a European Central Bank deposit rate of 3.25% and a Bank of Japan policy rate of 0.10%.
The catalyst for the renewed bullish call is recent economic divergence. US GDP growth for Q1 2026 came in at an annualized 2.1%, while Eurozone growth stalled at 0.3%. strong US labor data and persistent services inflation have delayed market expectations for Fed rate cuts. In contrast, economic softness in Europe and Japan is pressuring their central banks to consider more accommodative stances sooner.
This policy divergence creates a widening interest rate differential that favors dollar-denominated assets. Capital flows seeking higher nominal yields and safer growth prospects continue to support dollar demand. The structural backdrop of US economic outperformance provides a fundamental anchor for the bank's tactical view.
Concrete data supports the dollar’s recent strength. The US Dollar Index (DXY) closed at 105.42 on June 27, a gain of 5.8% from its 2026 low of 99.65 recorded on February 14. Year-to-date, the DXY is up 3.2%, outperforming the MSCI World Index, which is flat for the year. The euro has depreciated 4.1% against the dollar year-to-date, trading at 1.0650.
The yen shows even greater relative weakness, with USD/JPY trading at 158.90, near its highest level since 1990. The 10-year US Treasury yield sits at 4.31%, while the German 10-year Bund yields 2.45% and the Japanese 10-year JGB yields 1.05%. This creates a yield pickup of 186 basis points for US assets over German equivalents and 326 basis points over Japanese debt.
| Currency Pair | Rate (June 27) | YTD Change |
|---|---|---|
| EUR/USD | 1.0650 | -4.1% |
| USD/JPY | 158.90 | +12.5% |
| GBP/USD | 1.2450 | -2.8% |
Net long speculative positioning in the dollar, as measured by CFTC futures data, stands at $18.7 billion. This represents a 22% increase from positioning levels one month prior, indicating growing institutional conviction.
The strong dollar environment has clear second-order effects across global markets. US multinational corporations with significant overseas revenue, like Caterpillar (CAT) and Pfizer (PFE), face headwinds as foreign earnings are translated back into a stronger currency. Each 10% year-on-year dollar appreciation can shave 3-5% off the earnings of the average S&P 500 multinational.
Conversely, European exporters like Siemens (SIEGY) and LVMH (MC.PA) benefit competitively from a weaker euro, though their dollar-denominated debt servicing costs rise. Commodities priced in dollars, such as oil and copper, become more expensive for foreign buyers, potentially dampening global demand. Energy sector tickers like Exxon Mobil (XOM) can see mixed effects from higher dollar-denominated revenues and softer international consumption.
A key counter-argument is that stretched dollar valuations and crowded long positions increase vulnerability to a sharp reversal on any signs of US economic cooling. If upcoming inflation data surprises to the downside, rapid dollar selling could occur. Current positioning shows hedge funds and real money managers are net long the dollar, with flows concentrated in dollar index futures and short euro positions. The flow into yen shorts has moderated slightly as the Bank of Japan has hinted at potential intervention.
Three specific catalysts will determine the dollar’s trajectory through Q3. The US Consumer Price Index report for June, scheduled for July 11, will be critical for shaping Fed policy expectations. The European Central Bank’s monetary policy meeting on July 25 may provide clearer guidance on its cutting cycle pace. US Q2 GDP data, due July 30, will confirm or challenge the resilience narrative.
Technical levels are also essential. For the DXY, initial support rests at the 50-day moving average of 104.20, with stronger support at the 102.80 level. Resistance sits near the year-to-date high of 106.15. A sustained break above 106.50 would signal a potential extension of the bull trend. For EUR/USD, a decisive break below the 1.0600 support level could trigger a move toward 1.0450.
Market reaction to these events will hinge on their implications for relative interest rate paths. Should US data remain firm while European data disappoints, the policy divergence trade will intensify. Evidence of synchronized global slowing would undermine the dollar’s singular appeal.
A strengthening dollar typically reduces the US dollar value of foreign stock holdings for American investors. If you own shares in a European company, its euro-denominated gains are worth fewer dollars when converted. This currency translation effect can act as a headwind, sometimes offsetting underlying stock performance. International equity funds often use hedging strategies to mitigate this risk, though hedging carries its own costs and can dampen returns if the dollar weakens.
The US dollar experienced a significant, multi-year bull run from mid-2014 to early 2017, driven by Fed policy divergence from other major central banks. The DXY rose over 28% in that period. Another strong period occurred from 1999 to 2002, fueled by US tech sector outperformance and fiscal surpluses. The current phase, beginning in 2021, shares characteristics with these episodes: relative US economic strength, higher interest rates, and its role as a global safe-haven asset during periods of geopolitical stress.
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