© Reuters.
Investing.com – The dollar snapped a two-week losing streak on Friday ahead of a widely expected interest rate hike by the Federal Reserve next week, but some are divided on whether the rebound will hold.
The dollar, which measures the greenback against a basket of six major heavy currencies, rose 0.19% to 100.79, after falling to its lowest level in more than a year last week.
Bearish case: The dollar’s recovery has limited scope as the Fed nears the end of its hiking cycle
The Fed is expected to raise interest 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,” he added.
The Federal Reserve will begin its two-day meeting on Tuesday, with many expecting the meeting to culminate in a 0.25% interest rate hike after a pause in the June meeting.
Investing.com showed that about 99% of traders expect the Fed to raise interest rates next week.
Bullish case: soft bearish bets not enough to keep the dollar down in the second half; The Fed is unlikely to cut in early 2024
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.
The report added that economic growth is likely to slow in China and Europe, where “the most stable, even if moderate, growth in the United States will be net dollar positive over the remainder of the second half.”
Meanwhile, the end of the Fed rate hike cycle will not be 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 early 2024.
“Even as markets approach our view that the Fed will not change policy in 2023, we continue to put pressure on the early 2024 pivot, which is now being priced in,” Oxford Economics said.