Investing.com – The U.S. dollar has stabilized after a piercing decline in August, but Bank of America Securities predicts the American currency will face further headwinds.

As of 07:20 ET (11:20 GMT), the dollar index, which tracks the U.S. currency against a basket of six other currencies, was down 0.2% at 101.077, having been broadly unchanged throughout the previous week.

Despite this, the US currency lost 1.6% over the month.

Bank of America Securities analysts said in a September 5 note that the dollar sell-off last month stood out from other historical events.

Since then, the value of the dollar has stabilized, but despite the significant weakening, the American bank still sees three reasons to remain despondent about the dollar index (DXY).

The bank said that after similar episodes of declines on the DXY index, the index continued its downward trend.

In the last 3 analogues, the DXY index fell another 4% on average before reaching the bottom. Extending this analysis to the bilateral USD/G10 pairs suggests that a continuation of the USD downtrend is more likely against EUR, GBP and AUD than SEK, NOK and CHF in the G10.

Although the DXY index reached a fresh one-year low in August, the broad trade-weighted indices of the nominal and real USD remained at Q4 2022 levels, which may suggest that the USD remains overvalued.

The USD sell-off in 2024 has been concentrated in European currencies, leading to a divergence between the DXY and other USD indices.

The bank also noted that the yield on the 10-year U.S. Treasury bond is trending lower following the Federal Reserve’s first interest rate cut, while global financial conditions are expected to ease further.

“The USD could see further weakness as other central banks, especially those that had cut rates before the Fed’s decision, may now let the Fed do some of its work and indirectly support global economies outside the US,” BoA added.