The Dollar Index (DXY) depreciated by 4.5% this quarter, closing last Friday at 101.11, below the 101.33 mark at the end of 2023, DBS FX strategist Philip Wee notes
“A knee-jerk rebound is possible if the Fed delivers a 25 bps cut (our call) at the FOMC meeting on September 18 instead of the 50 bps reduction priced in by the futures market. However, looking ahead into late 2024 and 2025, we anticipate a further decline in the DXY, potentially falling below its 101-107 range since December 2022.”
“Unlike the earlier part of 2024, the Fed is not pushing back the market’s aggressive rate cut bets with a ‘higher for longer’ rate stance on sticky US inflation. In the third quarter, the Fed has grown more confident that inflation will continue its downward trend. As a result, the Fed has been paving the ground to start a rate-cutting cycle at this Wednesday’s FOMC meeting to avert a further cooling in the US labour market.”
“Beyond the Fed’s rate outlook, the Greenback also lost momentum with the ‘Trump Trade’. The next presidential term will face two distinct challenges. First, the next term will begin during a Fed rate-cutting cycle, not a hiking cycle. Second, the massive federal debt accumulated during the last two presidential terms will limit the ability to stimulate the US economy. We forecast US GDP growth slowing to 1.7% in 2025 from 2.3% in 2024.”
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