Rate-cut delays could mean dollar stays stronger for longer

livemint.com:

Further signs of a solid U.S. economy and potential delays to anticipated interest-rate cuts could prolong the dollar’s strength, analysts said. Many analysts and fund managers have been anticipating that the dollar would fall this year as the Federal Reserve starts to cut interest rates, but rate-cut expectations have been trimmed back sharply recently while U.S.

elections and geopolitical uncertainty could also lift the currency. “Doubts are spreading as to the ability of the Fed to cut rates at its June FOMC meeting," Jane Foley, head of FX strategy at Rabobank, said in a note. “This, combined with political risks, suggests the prospect of a stronger-for-longer dollar." Money markets show expectations of U.S.

interest-rate cuts have been slashed to just 62 basis points this year from around 150 basis points at the beginning of the year, according to Refinitiv, as data continue to point to robust economic growth and stubborn inflation. This has kept Treasury yields elevated and supported the dollar. Pimco favors the dollar over the euro and other European currencies such as the Swiss franc and the Swedish krona in anticipation of further evidence of the U.S.

economy performing better than others, economist Tiffany Wilding and Andrew Balls, chief investment officer for global fixed income, said. Jonathan Petersen, senior markets economist at Capital Economics cited a risk that U.S. economic growth and inflation could stay strong rather than soften as expected, forcing the Fed to keep rates high while other central banks reduce rates.