The Federal Reserve is expected to soon begin its long-awaited shift in U.S. monetary policy, which could mark the “beginning of the end” for the dollar’s continued rise, analysts said.
Globally, the fight against inflation is not over yet, but lower-than-expected inflation data from Norway, Sweden and the United States have recently surprised markets.
Next week, British inflation data will be released. The market is generally expected to see the overall inflation rate slow down from 2% to 1.9%, while the core indicator is expected to remain at 3.5%, which will continue to cause some concerns for the Monetary Policy Committee.
Analysts at Société Générale said: “If the data is in line with expectations, the foreign exchange market may assume the base case of interest rate cuts in the UK and the United States in September, but the stickiness of UK inflation may translate into further pushing up inflation.” (OTC) : ) said in the comments.
This inflationary stickiness in the UK is not good news, but is the result of Brexit at the start of the global pandemic, which resulted in a major supply-side price shock that was exacerbated by political action.
Historically, the dollar has not reversed on the first rate cut, so one might expect the second half to be more challenging.
The analysts continued: “However, this period of dollar strength was so strong and accompanied by such huge capital flows that a large-scale correction at some point was inevitable.”
The sharp depreciation of the yen reflects the strength of the U.S. dollar. The pair has recently strayed away from the path of U.S. Treasury yields, and the two are likely to recalibrate.
Analysts pointed out that USD/JPY falling to 150 is not surprising, although it does not confirm the end of the dollar’s dominance.
