Bank of America's analysts predict the US dollar could dip below fair value by 2026

The US dollar might be in trouble. Bank of America analysts say the currently overvalued dollar is sliding toward fair value. They think it could even fall below that by 2026. Trump's financial policies? Kind of murky.

The dollar's been tanking recently. Just as it approached new highs. After Liberation Day, things got worse. Tariff announcements scared people. Growth expectations dropped. Inflation worries grew.

The US dollar measure is down 10% this year. Worst first-half since 1980. Ouch.

Dollar stabilizes ahead of labor market data

Monday saw the dollar hit a five-week low. The dollar index rose 0.21% to 98.355 after falling earlier. It touched 97.552 - lowest since July 28. Then stabilized. Sort of.

Bank of America sees the euro getting stronger. Maybe $1.20-$1.25 from $1.1651. This raises big questions about global currency balance. The euro gained 0.35% to $1.1724 early this week. Sterling went up 0.18% to $1.3528.

Martin Luther King Jr. once said, "Injustice anywhere is a threat to justice everywhere." Seems like this applies to financial markets too. Fair currency values probably make global trade healthier.

Money markets think the Fed will cut rates. The CME FedWatch tool shows more than 90% probability for a 25-point cut in September. Another 100 basis points by fall 2026? Investors are watching. The nonfarm payrolls report is coming. Private payrolls and job openings data first.

US debt's impact on the dollar

Trump talks about cost-cutting. Efficiency. But what happened to Elon Musk's Department of Government Efficiency? It's not entirely clear. The One Big Beautiful Bill Act raised eyebrows. Trump called it the biggest tax cut for working and middle-class Americans ever.

Here's the thing about debt reduction. You either borrow less or make more money. Cutting taxes brings in less revenue. The administration keeps borrowing. A lot.

The OBBBA will add $3.4 trillion to the national debt, says the Congressional Budget Office. They mentioned tariff revenue might offset some costs.

America's debt? $37.3 trillion. Debt maintenance topped $1 trillion in July. That's 17% of the federal budget. For the whole year.

Tariffs might generate $30 billion monthly. Not enough. Doesn't cover monthly debt service. Forget about reducing principal.

July interest payments were massive. $38.1 billion on Treasury notes. $13.9 billion on Treasury bonds. $2.85 billion on Treasury floating rate notes. $6.1 billion on Treasury inflation-protected securities. Total monthly interest: $60.95 billion.

Ray Dalio warns of a "debt-induced heart attack" within three years under Trump's policies. Unsustainable borrowing. Rising interest costs. The dollar's reserve currency status might be at risk.

Financial circles sometimes say, "Fairness is not an attitude. It's a professional skill." Especially when talking about global currency values and market balance.