Investing.com — The dollar snapped a two-week losing streak on Friday ahead of the widely expected Federal Reserve rate cut next week, but some are divided on whether the rebound has resistance.
The , which measures the greenback against a trading basket of six major currencies, rose 0.19% to 100.79, after plunging to a more than one-year low last week.
Bearish case: Dollar rebound has limited room as Fed nears end of hike cycle
The Fed is expected to raise interest rates next week, likely pushing back bets that it won’t follow through with another hike, but this would only be “temporary support for the USD,” MUFG said in a note.
“Slowing US inflation coupled with resilient US activity is proving to be a negative mix for the dollar,” it added.
The Federal Reserve will begin its two-day meeting on Tuesday, and many expect the meeting to culminate in a 0.25% rate hike after a pause at the June meeting.
About 99% of traders expect the Fed to raise rates next week, Investing.com showed.
Bullish case: Soft landing bets not enough to keep dollar down in H2; The Fed is likely to cut in early 2024
The dollar’s weakness in recent weeks has been driven by bets of a soft landing in the US, but this is not “a sufficient condition for the greenback to weaken further”, says Oxford Economics, and it is likely to regain lost ground in the second half of the year.
Economic growth is likely to slow in China and Europe, as “steadier, if moderate, growth in the US will be a net positive for the dollar over the rest of H2,” it added.
The end of the Fed’s rate hike cycle, meanwhile, is not the dark storm cloud for the greenback that many expect, as it is unlikely to be accompanied by rapid rate hikes that are priced into early 2024.
“Even as markets have come around to our view that the Fed will not change policy in 2023, we continue to push for an early 2024 pivot, which is now priced in,” Oxford Economics said.