The dollar started a long decline… and the Fed is cutting rates at this time, by Investing.com

The dollar started a long decline… and the Fed is cutting rates at this time, by Investing.com
The dollar started a long decline… and the Fed is cutting rates at this time, by Investing.com
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© Reuters.

Investing.com – It appears that the dollar’s declines, which pushed the US currency index to its lowest level in nearly 9 months, will not stop soon, but rather seem to worsen.

This comes in accordance with the expectations of the strategists at Wells Fargo Bank, who believe that the US Reserve Bank has lost the reins of leadership and is no longer the real dominant.

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Long landing

According to a recent Wells Fargo research note, the US dollar has already embarked on a prolonged period of depreciation and decline.

“The US currency has already embarked on a long period of decline that could last until 2024, Wells Fargo analysts warn,” the bank’s analysts said.

The dollar lost support

Analysts at Wells Ergo added that relative economic growth performance and monetary policy expectations have become less supportive of the US dollar.

Most investors expect the Federal Reserve to raise interest rates by 25 basis points next week, which will reduce the attractiveness of the dollar against a basket of currencies.

This comes after the US Federal Reserve slowed its hawkish pace to 50 basis points last month, after 4 consecutive increases of 75 basis points.

You no longer expect the strength of the dollar

Wells Fargo analysts say, “We expect the US dollar to depreciate gradually in early 2023 as the US enters a recession during the second half of this year, but the Fed is reluctant to cut interest rates prematurely.”

The bank’s analysts expected the US dollar to depreciate further in 2024 since then, even as the US economy begins to stabilize.

cut next year

“We believe the Fed will begin aggressively cutting interest rates starting early next year,” said Wes Fargo experts.

Regarding the performance of the dollar, Wells Fargo expected that the Federal Reserve’s trade weight against developed foreign economies would decline by 3% by the end of 2023, and by a cumulative 8.5% by the end of 2024.

He lost control

Economists at Wells Fargo said, “Given that the Federal Reserve is no longer driving interest rate hikes and in light of expectations that US economic trends will worsen, we now believe that the dollar has entered a period of cyclical decline against most foreign currencies.”

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The Fed’s Policy Committee will begin two-day meetings next week, and markets are expecting a rate hike of 25 basis points, which is lower than the central bank announced last year when it hiked rates by 50 basis points and 75 basis points.

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Meanwhile, the markets are expecting the Bank of England and the European Central Bank, which also meet next week, to raise interest rates by 50 basis points. The European Central Bank is likely to continue its monetary tightening policy.

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pessimistic forecasts

Declining profits, pessimistic prospects from US companies and a series of layoffs in the technology sector added to fears of a sharp economic downturn in the United States.

According to Wells Fargo, these factors prompted investors to reduce expectations about how long the Federal Reserve will need to continue to raise interest rates aggressively.

currencies today

The US currency index swung against a basket of major currencies, as it rose 0.1% to 101.65, after falling to 101.52 earlier in the session, to approach its nine-month low, which it reached last week at 101.51.

The pound traded at $1.2400, while it fell 0.03% to $1.0911, although it remained close to its highest level in nine months at $1.0927, which it recorded on Monday.

The Canadian dollar reached 1.3399 against the US dollar in the latest transactions, after the Canadian Central Bank raised the main interest rate yesterday, Wednesday, to 4.5%.

The Australian dollar rose 0.2 percent to $ 0.7117, amid growing expectations that the Reserve Bank of Australia will raise interest rates, after shocking data showed yesterday, Wednesday, that inflation in the country rose to its highest level in 33 years in the past quarter.

The New Zealand dollar rose 0.1% to $0.6486, after falling 0.43% in the previous session, as annual inflation for the fourth quarter came less than the central bank’s expectations. In Asia, it rose 0.2% to 129.32 per dollar.

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