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Investing.com – The American managed to stop the losing streak for two consecutive weeks this week by the end of trading on Friday, a week ahead of Jerome Powell’s words. The markets are not skeptical about the Fed’s decision, as the vast majority agrees that the Fed will raise interest rates by 25 basis points, to rise to 5.50%. However, doubts shifted the Fed’s policy for the remainder of the year and whether the July decision would be the last in a series of monetary tightening and interest hikes that extended for nearly two years.
The US dollar index managed to rise by 0.19% by the end of the week, to trade at 100.79 against a basket of 6 foreign currencies, after falling to a 15-month low last week, before rebounding at the end of the week.
The rebound will not be long… bearish signals
The Fed is expected to raise rates next week and will likely back bets that it won’t follow it up with another hike, but this would only be a “temporary support for the US dollar,” the MUFG said in a note.
“Slowing US inflation coupled with resilient US activity data is proving to be a negative combination for the dollar,” she added.
The Federal Reserve will begin its two-day meeting on Tuesday, and many expect the meeting to culminate in a 0.25% interest rate hike after a pause in the June meeting.
About 99% of traders expect the Federal Reserve to raise interest rates next week, according to by Investing.
rise in this case
The decline in the US dollar index will not last if the only motive is to reach a “soft landing” or to stop raising interest rates before entering a recession. The point for Oxford Economics is more on when the Fed will cut rates, which Oxford does not expect soon.
The dollar’s weakness in recent weeks has been driven by bets on a soft landing in the US, but this is not “a sufficient condition for further US dollar weakness”, says Oxford Economics, and it is likely to regain lost ground in the second half of the year; Where Oxford Economics believes that the Fed will not go to cut interest rates until 2024.
Also, the Oxford report stated that there is another hidden factor that represents a real risk that may return the dollar index to a strong rise, which is the “stagnation”.
The report added that economic growth is likely to slow in China and Europe, where “the most stable, even if moderate, growth in the US will be net dollar positive over the remainder of the second half.”
Meanwhile, the end of the Fed’s rate hike cycle is not the dark storm cloud for the dollar that many expect because it is unlikely to be accompanied by rapid rate cuts, which will be priced in in early 2024.
“Even as markets approach our view that Bank, we continue to put pressure on the early 2024 pivot, which is now being priced in,” the Oxford Economics report said.
2023-07-23 08:30:00
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