The U.S. dollar's dominance will come to an end if the Federal Reserve give...
BENGALURU - The U.S. dollar’s dominance will come to an end if the Federal Reserve gives in to pressure from financial markets and President Donald Trump and chops interest rates another 50 basis points this year, a Reuters poll of market strategists showed.
The U.S. central bank delivered a rate cut last week but the dollar .DXY held firm, mostly driven by Fed Chair Jerome Powell’s comments citing the latest move as “a mid-cycle adjustment to policy,” dampening expectations for aggressive easing. “The dollar needs to be knocked off its perch as one of the key high yielding G10 currencies. So if rates evolve the way the markets are discounting at the moment...that would probably go a long way in weakening the dollar,” said Adam Cole, head of FX strategy at RBC.
“We are seeing a Fed which is under extreme political pressure. Whilst Powell continues to push back against that in public, it is still a pretty invidious situation,” said Jeremy Stretch, head of G10 FX strategy at CIBC. That makes the argument on interest rate differentials invalid at least until the Fed follows through on expectations, according to Eric Theoret, currency strategist at Scotiabank. He argues currencies are being driven more by sentiment and risk aversion rather than economic fundamentals.
Analysts have been trimming their 12-month views for almost a year and the latest consensus is the lowest in two years.
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