Bank of America employs a time zone framework to predict the USD’s trajectory for H2 2025. Despite a rocky start to the year, the dollar’s decline could be curtailed, particularly during US trading hours.

During US hours, there is a 71% correlation between cumulative USD returns and Fed rates pricing in 2025. With the Fed anticipated to maintain stable rates for the rest of the year, this may partly bolster the USD during US trading periods.

Asian Market Trends

In Asia, USD selling has been driven by investors unwinding long positions from the past two years, leading to a flat trend in Asian hours. These investors may pause USD selling unless new global bearish catalysts arise.

In Europe, any potential USD weakness will rely on global equities outperforming US equities. While non-US equities outpaced US equities in Q1, US equities dominated in Q2, affecting European investors’ stance on USD selling.

Foreign investors show diminished interest in increasing FX hedges on US assets due to the USD’s depreciation this year. Overall, while BofA’s framework indicates slower USD declines, the global versus US equity performance remains a potential factor in further USD weakening during European hours.

Intraday Flow Strategies

This analysis outlines a trading strategy shaped around when, not just where, currency movements occur. Bank of America constructed a time-based framework to help anticipate the US dollar’s performance through 2025. In essence, it maps which trading hours tend to push the dollar up or down. It doesn’t suggest a permanent trend reversal but introduces temporal nuance — and that nuance makes all the difference when evaluating short-term strategies.

During American market hours, there’s a tight 71% correlation between the direction of the dollar and expectations around what the Federal Reserve might do next year. Since the Fed is widely expected to maintain its benchmark rate for the rest of this year, that stability plays into stronger dollar behaviour while US markets are active. With rate volatility fading, intraday moves guided by fresh Fed commentary or unexpected pivots are likely to be narrow. Therefore, timing exposure within these hours becomes tactically important.

Asian market hours follow a different pattern. There’s been steady unwinding of bullish dollar positions, built up over the past couple of years. Once that deleveraging is done—likely drawing near—the pressure to sell dollars during Asia’s trading day should ease. Unless, of course, some broader risk trigger drives markets into defensive behaviour across the board. That possibility, albeit always latent, would bring renewed energy to Asian USD selling, but without that, moves appear exhausted.

In Europe, the dollar’s behaviour is more reactive to how well stock markets outside the US are performing in relation to American benchmarks like the S&P 500. There was a brief moment earlier this year when global equities, especially in emerging markets and core Europe, pulled ahead. But then, US equities caught up and reclaimed their dominant rhythm in the second quarter. That has meant less reason for European participants to rotate away from dollar exposure.

There’s been strongly reduced willingness among overseas asset holders to hedge US-denominated assets back into local currencies. The dollar’s gentle decline over the year has not created urgent demand for protection—hedging costs remain high, and performance cushions are slim. This erodes a previously reliable stream of USD selling, particularly when bond yields outside America fail to compensate.

Given this framework’s separable trading hour logic, we place weight on where intraday flows aggregate. Positioning ahead of Asian or European hours for short-term direction appears increasingly ineffective without new catalysts. However, intra-US hour strategies tied to rate expectations still show predictive value. Close attention to equity rotation trends—especially tied to whether US tech outpaces industrials abroad—remains a helpful filter in adjusting exposure. What matters in the next few weeks is less about long-term dollar direction and more about who moves markets, and when.

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