© Reuters
Investing.com – The dollar jumped on Monday, driving a wave of bearish bets that recently pushed it to one-year lows as some on Wall Street believe bets on Fed rate cuts and a soft landing are nearing a crossroads.
which measures the greenback against a heavy basket of six major currencies, fell 0.54% to 101.8, after falling to its lowest level since April 2022 on Friday.
Goldman Sachs said in a note: “The market is betting and pricing on a narrow path from a slightly slower economy matched by more accommodative monetary policy i.e. interest rate cuts and we at Goldman Sachs (NYSE:) believe it will likely reach a crossroads before too long.”
The dollar’s slide to a one-year low recently was fueled by bets that the banking crisis will dampen lending standards and economic growth, forcing the Federal Reserve to bail out with rate cuts.
But fears that the collapse of Silicon Valley Bank and Signature Bank will spark a systemic banking crisis did not materialize, bringing focus back to the rally the Fed is likely to push to keep interest rates higher for longer.
Goldman Sachs continued: “While Fed officials were understandably concerned in March, most commentary since then has indicated at least that tightening of lending conditions seems moderate so far, and they still view bank failures as relatively private and uninfluenced.” total”.
Data last week showed that banks cut borrowing from the Federal Reserve’s emerging lending programs to $139.5 billion from $148.7 billion in the week ending April 12, indicating that turmoil in the banking sector has eased somewhat.
Others, however, still believe that concerns about the impact of tighter credit conditions will weigh on the dollar, and point to a recent survey of small businesses showing signs of cracks in lending activity and recent data showing slowing inflation as reason for the Fed to pause.
“The developments should give the Fed more confidence that it has already raised rates sufficiently and can now pause the rate hike cycle,” the MUFG said. “Under these conditions, we believe that the downside risks to the US dollar remain.”
