Investing.com — Bank of America analysts said they are comfortable tactically fading the recent rally in the U.S. dollar this week, citing multiple reversal signals and market dynamics.

The bank’s FX Quant Insight report highlights factors such as lower U.S. Treasury yields, reduced USD demand, and a holiday-shortened trading week in the U.S.

“We are comfortable to tactically fade the USD rally this week on trend reversal signals, lower U.S. yield, and the U.S. holiday,” BofA wrote.

The dollar’s month-to-date strength is said to have been primarily driven by U.S. and Asia-based trading sessions.

However, the bank’s analysts expect muted activity during U.S. trading hours this week due to the Thanksgiving holiday, which could dampen the momentum behind the greenback’s gains.

A key signal in the report is BofA’s bullish view on , identifying it as the best currency pair to fade USD strength.

“Our quant framework is bullish NZD/USD this week on the back of NZD call option flow and the spot trend reversal signal,” the analysts noted.

Improved NZD valuation is said to add to the appeal, although BofA notes that risks remain, such as a more dovish-than-expected Reserve Bank of New Zealand (RBNZ) meeting.

Additionally, the bank’s technical models show USD uptrend reversal signals against the New Zealand dollar, British pound, and Swedish krona.

For GBP bulls, the bank said it would be positioning for a lower structure, as “option demand for EUR calls remains muted, and trend analysis shows several downtrend continuation signals for EUR-pairs.”

A 7-basis-point drop in 10-year U.S. Treasury yields, influenced by the nomination of Treasury Secretary Bessent, further supports a bearish USD view.

“Bessent has advocated a more gradual roll-out and transactional nature of tariffs policy, reducing bullish USD risk premium,” BofA wrote.

Investing.com – The US dollar edged higher Tuesday, while the Canadian dollar, the Mexican peso and the Chinese yuan slipped lower after President-elect Donald Trump raised the specter of a trade war at the start of his new term in office. 

At 04:50 ET (09:50 GMT), the Dollar Index, which tracks the greenback against a basket of six other currencies, traded 0.1% higher to 106.840, closing in on last week’s two-year peak. 

Dollar gains on tariffs talk

Trump took to his platform Truth Social late on Monday to threaten 25% tariffs on Mexico and Canada if they don’t better control their borders.

President-elect Trump also threatened to slap an additional 10% tariff on all Chinese imports when he takes office on Jan. 20, adding that he would impose the tariffs until Beijing stops the flow of illegal drugs, particularly fentanyl, into the United States.

“Whilst most in the market assume that Trump will be using tariffs as a large bargaining stick – in this case to tighten US border controls – we would be careful of dismissing their market impact as some grandstanding,” said analysts at ING, in a note.

“If 25% tariffs came close to seeing the light of day in Mexico, would be a 24/25 story, not just 21. We already think the currencies of Mexico and Canada will have a tougher Trump 2.0 than they did during his first term.”

These currencies have already been hit hard, with up 0.9% to 1.4106, and USD/MXN 1.4% higher to 20.5738.

“These policies are generally positive for the dollar. Although the final outcome of the tariff threat may be less severe once negotiations are concluded,” ING added.

Elsewhere, the Federal Reserve releases the later in the session of its early November meeting when it cut rates by a quarter point.

The Fed began cutting interest rates after gaining confidence that inflation would continue to fall, but inflation’s progress toward its 2% goal appears to have slowed.

Euro stable, for now

In Europe, gained 0.1% to 1.0507, but the single currency remains under pressure, having hit a two-year low last week, as the European economic outlook still looks difficult, especially if Donald Trump starts a global trade war.

“That Europe was not mentioned in Trump’s first tariff post could perhaps be welcome news on the Continent. Yet local policymakers will remain fearful that it will just be a matter of time before Trump turns his attention to the European auto sector or tariffs more broadly,” said ING.

“In any case, the threat of further tariffs on China shows the direction of travel on world trade, which is bearish for the euro.”

The has cut rates three times already this year, and investors now see a 50% chance it will cut by 50 basis points on Dec. 12 instead of the usual 25 given weak growth and rising recession risks.

traded flat at 1.2568, just above last week’s six-week low on Friday as economic weakness points to an increased chance of rate cuts from the .

Trump’s comments weigh

slipped 0.2% to 7.2546, with the Chinese currency falling to its weakest in nearly four months after Trump’s comments on potential tariffs, but still holding up better than other currencies mentioned.

“We’re taking the view at ING that Chinese authorities are playing the long game here and will not be devaluing the renminbi for some short-term gains for local exporters,” said ING.

fell 0.2% to 153.95, with the Japanese yen benefiting as traders sought safe-haven assets amid renewed trade tensions.

By Chuck Mikolajczak

NEW YORK (Reuters) -The euro slumped to a two-year low while the dollar gained on Friday after gauges of business activity were released in each region, while bitcoin again hit a record high as it continued its march toward the $100,000 mark.

HCOB’s preliminary composite euro zone Purchasing Managers’ Index, compiled by S&P Global, sank to a 10-month low of 48.1 in November, below the 50 level that marks expansion from contraction, and the 50.0 estimate.

In addition, Britain’s PMI fell to 49.9 in November, from 51.8 in October. The government’s plan to increase taxes on businesses contributed to the first contraction in private sector activity in over a year, adding to recent indications the economy was losing steam.

But in contrast, S&P Global said its flash U.S. Composite PMI Output Index, which tracks the manufacturing and services sectors, increased to 55.3 this month, the highest level since April 2022, after a 54.1 reading in October, with the services sector proving the bulk of the increase.

“It highlights the two-track world. It’s U.S. versus the rest, but even within the U.S. it’s services versus manufacturing,” said Brian Jacobsen, chief economist at Annex Wealth Management in Menomonee Falls, Wisconsin.

“How long can U.S. services make up for the drag from everything else?”

The , which measures the greenback against a basket of currencies, rose 0.41% to 107.50, with the euro down 0.54% at $1.0416 after falling to $1.0333, its lowest since Nov. 30, 2022. The greenback was on track for its third straight weekly advance.

continued its recent rally toward the $100,000 mark that has seen the cryptocurrency surge more than 40% since the U.S. election on expectations President-elect Donald Trump will loosen the regulatory environment for cryptocurrencies. Bitcoin was last up 1.44% at $98,496 after hitting a record $99,697.17.

Investors have scaled back expectations for the path of interest rate cuts from the Federal Reserve recently, currently pricing in a 52.7% chance of a 25 basis point cut at the Fed’s December meeting, down from 69.5% a month ago, according to CME’s FedWatch Tool, as they assess the impact of legislative policies by the Trump administration, such as tariffs, on the economy.

Other central banks such as the European Central Bank and the Bank of England are seen as likely to become more aggressive in cutting interest rates to buttress their economies.

Sterling weakened 0.49% to $1.2528 and was on track for its second straight weekly decline.

Some of the European Central Bank’s most influential policymakers urged the European Union to bring back long-stalled economic integration to protect its model of prosperity from a looming trade war with the United States.

Investors are waiting for Trump to name a Treasury secretary. The Wall Street Journal reported on Thursday that Trump floated the idea of appointing Kevin Warsh, a former member of the Fed’s board of governors, to the post, with the understanding that he could later become Fed chair.

Against the Japanese yen, the dollar strengthened 0.12% to 154.69. The yen had fallen below 156 per dollar last week for the first time since July, sparking the possibility that Japanese authorities may again take steps to shore it up.

Japan’s annual core inflation was 2.3% in October, keeping pressure on the central bank to raise its still-low interest rates.

Just over half of economists in a Reuters poll believe the Bank of Japan would hike in December, in part because of concerns about the depreciating yen in the midst of an improving economy.