Economists at the Bank of America expect moderate USD softness with strong productivity growth not factored into the USD outlook.

Moderate USD softness expected

The current rapid technological progress, especially the advent of AI applications and chatbots, parallels the tech boom of the mid-90s. This previous era of technological advancement led to significant productivity growth and considerable USD strength.

Our base case scenario envisages moderate USD softness through the end of next year, with no strong productivity growth incorporated in the USD outlook. Despite optimism that technological progress will result in higher productivity, we foresee the US remaining in a softer growth mode for the medium term. This implies a EUR/USD that is around the 1.15 level by the end of next year, eventually moving towards fair value in the 1.20's.