The U.S. greenback’s dominance will come to an end if the Federal Reserve gives in to strain from financial sectors and President Donald Trump and chops rates of interest another 50 basis points this year.
While a complete U-turn in predictions for Fed policy toward easing in comparison with tightening at the beginning of the year has not pushed the greenback weaker, the latest survey of 60 analysts nonetheless confirmed a more uncertain outlook for the dollar.
The U.S. central bank declared a rate reduction last week; however, the greenback held agency, primarily driven by Fed Chair Jerome Powell’s comments citing the most recent shift as “a mid-cycle adjustment to policy,” dampening expectations for competitive easing.
While the dollar’s appeal has remained intact on robust demand for greenback-denominated assets, over 40% of the schemers who answered a separate question stated a change in Fed policy expectations would push the currency.
Financial markets are pricing in a minimum of two 25 basis point Fed rate reductions by year-end, based on CME Fed Watch. That would weaken the greenback considerably, according to the vast majority of responses to a further question.
While Powell’s message is clear that this isn’t the beginning of an easing cycle the central bank has been pressured frequently by Trump, who has called out the Fed head he appointed for not paring rates aggressively.
The Fed – which wants to state its liberty – is conflicted by financial records not yet supporting aggressive easing. At the same time, concerns about spillover from the U.S.-China trade conflict warranted action at the end of July talks and has intensified sharply since then.