US dollar to stay strong as markets delay Fed rate-cut bets: Reuters poll By Reuters


By Sarupya Ganguly

BENGALURU (Reuters) – The U.S. dollar will remain strong in the coming months as financial markets continue to push back on expectations for the timing and pace of the Federal Reserve’s interest rate hike, according to foreign exchange analysts polled by Reuters.

With a slight downside to the end of 2023, the greenback has strengthened about 3.3% this year against a basket of major currencies, with traders showing the dollar’s longest bets since September 2022.

A strong US economy and strong inflation have forced financial markets to rethink their bets on the timing of the Fed’s first rate cut.

While markets currently expect a roughly 60% rate cut in June, it has priced in around 75 basis points of cuts this year – which some policymakers see as “reasonable” and in line with the Fed’s estimates.

But that is much lower than what nearly 150 markets expected earlier this year, suggesting the dollar will remain strong in the near term.

No major currencies are expected to reverse the year-on-year losses against the dollar, at least in the next three months, according to economists in a March 28-April 3 Reuters poll.

“The markets are slowly learning that this is not a ‘cut-off’ area, but an area where there is no ‘quick change’… This should continue to put the dollar down, at least until. The support for inflation is clear,” Goldman Sachs analysts noted.

The euro, trading at around $1.08 on Wednesday, is expected to gain around 1.0% to $1.09 by the end of June, making up for a slight loss of 2.3% so far this year. It was then predicted to strengthen by 1.0% to $1.10 in six months, according to median forecasts from 90 foreign analysts.

YEN TO BE CARRYING THE COST OF CHOICE

The battered Japanese yen, down about 25% since the start of 2022 and about 1% after the Bank of Japan (BOJ) raised interest rates last month for the first time in 17 years, is expected to be one of the biggest gains against the dollar. big money in the coming year.

Currently trading at 151.7 per dollar, the yen is forecast to rise by around 6.1% to 143 by the end of September, before strengthening 2.9% to 139 in 12 months. The BOJ is expected to hike once more this year.

However, a median of about 30 respondents to an additional question indicated that the weakest yen, which hit a 34-year low last week, will fall to 152 to the dollar this month. Responses ranged from 151.8 to 155.0.

If recognized, this could open the door to monetary intervention by Japanese authorities, who recently said they could take “definite steps” against the yen’s weakness.

The last time they intervened was when the currency fell to around 152 per dollar in October 2022.

When asked if the yen is still a currency to buy goods – to borrow at a low interest rate to use more flexible funds – about 90% of respondents, 26 out of 30, said.

The remaining four chose the Swiss franc.

“The BOJ’s negative interest rate/control curve removal strategy was heavily drawn and priced into the FX market…said Alex Cohen, FX analyst at Bank of America.

“Carrying is still a key driver of the yen, which should continue to be used as a currency to support the currency.

(For more news from the April Reuters international exchange survey 🙂

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