Bank of America sees the US dollar trading largely sideways into the end of the year, despite market pricing that implies roughly an 85% chance of a Federal Reserve rate increase in September. In a report titled "G10 FX back-to-school: dollar unloaded" published on September 8, 2026, the firm laid out why the currency has not mustered a meaningful rally even as expectations for more Fed tightening have grown.
According to the bank, dollar sentiment began to deteriorate after the July Federal Open Market Committee press conference featuring Chair Warsh, when investors questioned the Fed's credibility due to an absence of a clearly articulated plan to tackle inflation that remains above target. Since then, market participants have received a sequence of mixed signals.
Those signals include an attempted course correction by Chair Warsh at Jackson Hole, a notably strong August employment report, relatively dovish public comments from regional Fed officials Williams and Waller, and a Treasury buyback program aimed at suppressing US yields. Taken together, these developments have diminished the dollar's impetus despite rising expectations for additional Fed tightening.
The report also highlights that recent acceleration in oil, gas and refined energy prices - factors that historically can support dollar appreciation - have not produced the typical boost for the currency. At the same time, the dollar has come under pressure amid widespread repricing of central bank paths and global yield curves.
With more than three rate hikes now priced into Fed expectations, Bank of America judges that the hurdle for the committee to deliver policy moves that both exceed market forecasts and diverge materially from other G10 central banks is high. As a result, the bank forecasts dollar performance to remain range-bound into year-end, though it carves out an exception for movements versus the Japanese yen.
Report reference: "G10 FX back-to-school: dollar unloaded", Bank of America, September 8, 2026.