Bank of America Forecasts Sideways Dollar Trading Through Year-End

The U.S. dollar is expected to trade sideways for the remainder of the year, despite markets pricing in a high probability of another interest rate hike by the Federal Reserve this month, according to a new analysis from Bank of America.

Sideways Forecast Despite Hawkish Bets

In a report published September 8, 2026, Bank of America strategists stated they expect the dollar to remain range-bound into year-end, with the exception of its performance against the Japanese yen. This forecast comes even as market pricing, cited by the bank, shows an approximately 85% probability of a rate increase at the upcoming September Federal Open Market Committee (FOMC) meeting following recent inflation data.

With more than three rate hikes now priced into the market, BofA notes that the bar for the Fed to exceed both market expectations and the hawkish stances of other G10 central banks appears high. This suggests the potential for further dollar gains driven by Fed policy may be limited.

Factors Weighing on the Dollar

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According to the bank's analysis, several factors have contributed to weakening dollar sentiment, preventing it from rallying on otherwise supportive news. In the report, titled "G10 FX back-to-school: dollar unloaded," strategists pointed to several key headwinds:

• Weakened sentiment following the July FOMC press conference, which raised credibility concerns over the Fed's plan to tackle inflation.
• Mixed signals from Fed officials, including dovish comments from Williams and Waller that contrasted with a strong August labor report and a course correction attempt from Chair Warsh at Jackson Hole.
• An unusual failure to appreciate despite a recent acceleration in energy prices, a historically supportive factor for the dollar.
• A broader repricing of yield curves and central bank policies globally.

Market Context

The dollar's sluggishness also reflects other technical factors, such as the U.S. Treasury's buyback initiative, which has worked to suppress domestic yields. The combination of these headwinds suggests that much of the Fed's aggressive tightening cycle is already reflected in the dollar's current valuation, limiting its potential for significant further gains in the near term.