By Sarupya Ganguly
BENGALURU (Reuters) – The U.S. greenback will stay sturdy over the approaching months as monetary markets proceed to push again on expectations for the timing and magnitude of Federal Reserve rate of interest cuts, in keeping with international trade strategists polled by Reuters.
Bucking a short downward pattern in late 2023, the dollar has strengthened about 3.3% this yr towards a basket of main currencies, with dealer positioning knowledge exhibiting net-long greenback bets at their highest since September 2022.
A powerful U.S. economic system and sticky inflation has compelled monetary markets to rethink their bets on the timing of the primary Fed price lower.
Whereas markets presently anticipate a roughly 60% likelihood for a lower in June, they’ve priced in roughly 75 foundation factors of price reductions this yr – what some policymakers contemplate “affordable” and in keeping with the Fed’s personal projections.
However that’s markedly decrease than the almost 150 foundation factors of cuts markets have been anticipating earlier this yr, suggesting the greenback was more likely to keep dominant within the near-term.
Not one of the main currencies have been anticipated to recoup their year-to-date losses towards the greenback, at the least within the coming three months, in keeping with forex strategists within the March 28-April 3 Reuters ballot.
“Markets are step by step studying that this isn’t a ‘cut-no-matter-what’ surroundings, however moderately one the place there may be ‘no rush to regulate’ … That ought to proceed to place a flooring beneath the greenback, at the least till inflation aid comes into clearer view,” strategists at Goldman Sachs famous.
The euro, buying and selling round $1.08 on Wednesday, was anticipated to achieve about 1.0% to $1.09 by the tip of June, making small inroads right into a 2.3% loss thus far this yr. It was then forecast to strengthen one other 1.0% to $1.10 in six months, in keeping with median forecasts from 90 international trade analysts.
YEN TO REMAIN CARRY CURRENCY OF CHOICE
The battered Japanese yen, down almost 25% since early 2022 and round 1% after the Financial institution of Japan (BOJ) raised rates of interest final month for the primary time in 17 years, was anticipated to be one of many greatest gainers towards the greenback amongst main currencies within the coming yr.
At the moment buying and selling at 151.7 per greenback, the yen was forecast to rise about 6.1% to 143 by the tip of September, earlier than strengthening one other 2.9% to 139 in 12 months. The BOJ is forecast to hike at the least as soon as extra this yr.
Nonetheless, the median of about 30 respondents to an extra query confirmed the weakest the yen, reeling off a 34-year low final week, would fall to is 152 per greenback this month. Responses ranged from 151.8 to 155.0.
If realised, this might open the door to forex intervention by Japanese authorities, who lately stated they may take “decisive steps” towards yen weak point.
The final time they intervened was when the forex fell to lows close to 152 per greenback in October 2022.
Requested whether or not the yen was nonetheless the popular funding forex for carry trades – borrowing in a low rate of interest forex to spend money on the next yielding forex – a near-90% majority of respondents, 26 of 30, stated it was.
The remaining 4 selected the Swiss franc.
“The BOJ’s destructive rate of interest coverage/yield curve management removing was extremely telegraphed and basically totally priced into the FX market … consequently, we obtained a traditional ‘purchase the rumor, promote the actual fact’ sort response within the JPY,” stated Alex Cohen, FX strategist at Financial institution of America.
“Carry remains to be a key issue driving the yen, which ought to proceed for use as a funding forex. Shifting from a barely destructive to a barely constructive coverage price will not change that.”
(For different tales from the April Reuters international trade ballot:)
