Bank of America analysts see downside risks for the U.S. dollar as affordability concerns intensify in a sharply divided economy. Wealthy households and corporations show strong consumer spending, while low-income earners struggle with elevated living costs, creating a widening K-shaped economic pattern ahead of November elections.

Policymakers may respond with interest rate cuts to lower mortgage costs, which could negatively impact the dollar. The nomination of Kevin Warsh as Fed Chair adds uncertainty to bond holdings strategy, while AI's labor market effects and productivity gains remain unclear factors influencing currency direction.

The dollar index has already slumped over 10% in the past year, with Trump's manufacturing revival campaign placing foreign exchange markets in focus. A weaker dollar could help exports but risk inflation through pricier imports. BofA notes investor positioning remains short on the greenback, suggesting further potential downside.