© Reuters
Investing.com – The dollar struggled to recover on Monday after tumbling to its lowest levels in more than a year last week, as bears appeared poised to tighten their grip on the greenback, buoyed by mounting bets on a less hawkish Federal Reserve and optimism that a soft landing as the economy in The horizon is gaining momentum.
The currency pair, which measures the greenback against a basket of six major heavy currencies, fell 0.10% to 99.51, after falling to its lowest level in more than a year at 99.26 last week.
Goldman Sachs said in a recent note}} that this marks the lowest level in the dollar index since April 2022, and this downtrend could extend in the near term, because “the same factors that influenced this report appear likely to be softer still in the coming months.” , and the policy implications are bringing about a welcome relief in a number of corners of the market.”
However, the bank added that “the general depreciation in the dollar’s value over the course of this year is likely to be shallow and subdued,” as inflation is also expected to slow in other regions including the eurozone, limiting the need for tight monetary policy tightening.
Soft landing, less hawkish Fed strengthens bears’ grip on the dollar
The selling of the greenback coincided with lower Treasury yields on bets that the next Fed rate hike, widely expected later this month, could be the last rally for the cycle.
The odds of a July rally are fully priced in, according to Investing.com
Recent data showing better-than-expected economic growth and a faster-than-expected slowdown in inflation dampened the prospects of a recession or a hard landing, and sharpened bets on a less hawkish Fed.
The probability that a recession will start in the US within the next 12 months is 20%, according to Goldman Sachs, down from its previous forecast of 25%. She added, “The economic data has reinforced our confidence that reducing inflation to an acceptable level will not require a recession.”
Some have highlighted the strength of consumer spending, which surprising many and accounts for two-thirds of economic growth, as the driver of the soft landing narrative.
“People made a lot of money in 2021, and everyone still has a lot of money to spend,” Zhiwei Ren, managing director and portfolio manager at Penn Mutual Asset Management, told Investing.com’s Yassin Ibrahim in a recent interview. At this point, I think the economy is still going strong… I don’t see recession risks.”
The dollar may still have some fighting ahead of the Fed’s decision
Others, however, argue that the bearish move in the dollar has extended too quickly and too far that the Fed may want to follow through on its forecast of two more hikes to back off eventual bets of a rate hike.
ING bank said in a note that traders are “marginally more likely to take a more cautious approach rather than accumulate bearish bets against the dollar ahead of the FOMC meeting,” and that could help the dollar “recoup some parts of its recent losses.”
