The dollar may have staged a short-lived comeback in July, climbing more than 3% after its worst first-half in decades, but its summer surge is quickly unraveling as stagflation fears resurface.
Through August 21, the U.S. Dollar Index — as tracked by the Invesco DB USD Index Bullish Fund ETF (NYSE:UUP) — has dropped over 1% month-to-date, reigniting a broader downtrend that Bank of America now believes is here to stay.
The bank’s latest call? The dollar is heading lower again—fast.
US Heading For Stagflation?
The key reason for the bearish dollar outlook lies in the dreaded mix of softening labor data and stubbornly high inflation—an economic regime widely known as stagflation.
This toxic combination, characterized by weak growth and rising prices, has historically spelled trouble for the greenback, especially when the Federal Reserve leans dovish.
“Potential rate cuts amid increasing inflation creates fertile ground for dollar depreciation,” said Bank of America strategist Alex Cohen in a client note shared Thursday.
With jobs weakening and inflation stubbornly high, the Fed could slash rates into a rare stagflationary …