April 26, 2024, 03:30 PM

Desjardins FX Forecasts: USD Could Trend Downward Once Fed Rate Cuts "Look More Probable"

U.S. interest rates resumed their upward climb in April, giving the US dollar an edge over several other currencies, Desjardins noted Friday.

One of the contributing factors, it noted, was the lack of progress on inflation numbers, which were published on April 10. Desjardins said it's becoming "increasingly" clear that the Federal Reserve is headed down a different path than most other major central banks. Unless the next US data releases point to an abrupt turnaround, the Fed will almost certainly decide to wait a while longer before cutting interest rates, it added.

According to Desjardins, "May and June will likely look a lot like April", with changing monetary policy expectations continuing to shake up the currency market, and then the Fed waiting until the fall before it makes an initial rate reduction. "Before that can happen," it said, "both inflation and the US economy have to cool enough to convince the central bank."

Desjardins added: "Once US rate cuts look more probable, the greenback could start trending downward again relative to several other currencies. More generally, we don't expect there to be a marked slowdown in global economic growth, and therefore we don't anticipate investors flocking to safe-haven assets and driving up the US dollar."

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