© Reuters
Written by Yassin Ibrahim
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.
The dollar, which measures the greenback against a basket of six major heavy currencies, rose 0.54% to 101.8, after falling to its lowest level since April 2022 on Friday.
“The market is pricing in a fairly narrow path to a small slowdown but more accommodative policy, and we believe it will likely reach a fork before too long,” Goldman Sachs said in a note.
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 a collapse of Silicon Valley Bank and Signature Bank would lead to a systemic banking crisis did not materialize, bringing focus back to a rally that is likely to keep interest rates higher for longer.
Goldman Sachs added, “Although 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.” .
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 abated 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 a reason for the Fed to pause.
“The developments should give the Federal Reserve 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 risks remain on the downside for the US dollar.”