BofA Warns of Heavy Event Calendar and Mounting Headwinds for the Dollar

Key Moments

BofA Securities strategists said the U.S. dollar faces a “long December” as a dense calendar of event risks could reshape its near-term trajectory.
Market expectations for a 25 basis point Federal Reserve rate cut at the December 9-10 meeting have climbed to roughly 87%, from about 40% a little over a week earlier.
BofA argued that any near-term U.S. dollar strength is likely to be short-lived, with “dollar negative outcomes” potentially having more room to run into 2026.

Event-Heavy Year-End Looms Over the Dollar

Analysts at BofA Securities expect growing pressure on the U.S. dollar in the weeks before Christmas. They also foresee further weakness in 2026. In a recent note, strategists Alex Cohen and Adarsh Sinha said investors “will have a lot” to process before 2025 ends. This is due to a cluster of market-sensitive events that could influence the currency.

“It is looking to be a long December for markets, and there’s reason to believe the high concentration of event risk could shape the near-term outlook for the U.S. dollar,” the BofA analysts wrote.

AI Equity Swings and an Unclear Dollar Link

The strategists highlighted that traders monitor volatility in artificial intelligence-related stocks. At the same time, some concerns have eased about lofty technology sector valuations and heavy AI infrastructure spending in late November.

The note said the U.S. dollar has recently reacted more to daily moves in AI stocks. However, on a weekly basis, it often moves in the opposite direction. Analysts described the overall relationship between the dollar and AI shares as “inconclusive.”

Federal Reserve Decision Moves to Center Stage

Currency markets focus on the Federal Reserve’s upcoming interest rate decision in December. BofA strategists noted that expectations for a 25-basis-point cut at the December 9-10 FOMC meeting have risen sharply. Data from CME FedWatch showed the implied probability of such a move near 87%, up from about 40% slightly more than a week earlier.

They linked the shift in market pricing to softer U.S. economic indicators that have reinforced the view that the Fed may need to lower borrowing costs to support hiring and business investment.

Event / Indicator	Recent Development	Implication for USD (per BofA)
Fed December 9-10 meeting	Market pricing for a 25 bps cut rose to roughly 87% from about 40% a little over a week ago	Upside risks into the meeting, but longer-term pressure from a more dovish stance
U.S. labor market data	Unemployment rate in September reached the highest level in almost four years; Fed report signaled slight employment decline and more hiring freezes	Supports expectations for rate cuts, weighing on the dollar over time
Consumer confidence	Survey dropped to the lowest level since April	Adds to the case for monetary easing
Supreme Court ruling on tariffs	Potential decision on use of emergency economic powers to impose broad tariffs	Overall skew seen as negative for the dollar, with high uncertainty

Softening Data and Policy Uncertainty

BofA pointed to several signs of cooling in the U.S. economy. The unemployment rate in September rose to its highest level in nearly four years. At the same time, a consumer confidence survey slipped to its lowest reading since April. A Federal Reserve report also indicated a small decline in employment, with more Fed districts reporting hiring freezes.

Many key indicators for October and November have not yet been released because of what the article described as a record-long federal government shutdown that ended last month. As a result, the data backdrop that the Fed and markets are assessing is incomplete.

Potential Fed Leadership Change Adds to FX Sensitivity

Beyond the policy decision itself, BofA emphasized that markets are focused on who might lead the Fed when the current Chair’s term expires in May. Media reports have pointed to White House economic adviser Kevin Hassett as a leading candidate to replace Jerome Powell. The article noted that Hassett is a close ally of President Donald Trump, who “has long badgered the Fed to aggressively and quickly slash interest rates to help boost the economy.”

“We see upside U.S. dollar risks going into the meeting, though […] greater FX sensitivity is likely to come from data and the next Fed Chair,” the BofA analysts said.

The strategists argued that “a more dovish Fed over time feels inevitable,” and maintained that any episodes of dollar strength would likely be “short-lived,” whereas “dollar negative outcomes could have a way to run.”

Supreme Court Tariff Case and Fiscal Concerns

Another potential catalyst highlighted by BofA is a forthcoming U.S. Supreme Court ruling related to President Trump’s use of emergency economic powers to implement extensive tariffs, described as a central element of his economic agenda.

If the Supreme Court decides against Trump and orders tariff revenues to be repaid, the analysts said this “would create renewed pressure/focus” on the U.S. fiscal picture. Such an outcome could lift the risk premium that investors demand for holding longer-dated U.S. government bonds instead of frequently rolling over short-term debt, they added.

According to the note, this scenario could put downward pressure on the U.S. dollar. Overall, BofA concluded that the potential Supreme Court decision is tilted “negative” for the currency, although they stressed that it comes with “a high degree of uncertainty.”

Outlook: Short-Term Upside, Longer-Term Strain

Summarizing their view, the BofA strategists see scope for the dollar to experience bouts of strength around the upcoming Fed meeting. However, they believe that the combination of softer economic data, the likelihood of a more dovish policy path, uncertainty over Fed leadership, and legal developments around tariffs all bias the medium-term and 2026 outlook toward further dollar weakness.