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Dollar’s Bullish Reign Won’t Stop Until Fed Pivots, Global Growth Jitters Ease

Forex Jun 16, 2022 04:51PM ET
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By Yasin Ebrahim 

Investing.com -- The dollar extended its losses Thursday from a day earlier, but the pain isn't expected to last very long because wobbles in the global economy and a Federal Reserve leaning more hawkish will push investors into the safe arms of the greenback. 

The U.S. dollar index, which measures the greenback against a trade-weighted basket of six major currencies, fell by 1.2% to 103.64

The dollar has been supported by a double helping of Fed hawkishness and a wobble in the global economy. But there aren't signs that either of these conditions are shaping up for a reversal, likely signaling the dollar has further to run. 

"Our FX strategists expect the USD to remain strong; neither a dovish pivot nor a marked improvement in global growth expectations appears likely in the near term," Morgan Stanley said in a note. 

The Fed raised rates by 0.75% on Wednesday, and set a course for a far more steeper path of rate hikes. The central bank now expects to rise rates by another 1.5%, or 150 basis points, to about 3.4% by year-end. That was far steeper than the Fed's prior projections in March, when it saw rates moving to about 1.9% by the end of the year. 

Fed Chairman Jerome Powell conceded that the central bank's hand was twisted into larger than expected hike by inflation data that surprised to the upside. Some on Wall Street believe the Powell hasn't yet got a grip on how much longer inflation is likely to run hot. 

“Bottom line is the Fed still believes core inflation is largely temporary,” Morgan Stanley said, pointing to the Fed’s forecast for core inflation to peak at 4.3% this year, and eventually drop to under 3% next year.

If the Fed finds itself staring down the barrel of an inflation surprise once again, then it will be forced to extend its forecast on how much further rates will need to move before peaking, the so-called terminal rate, to bring down inflation.

The central bank currently expects to put its rate hike tool back into the monetary policy toolbox when its benchmark rate reaches 3.5% to 4.5%. If inflation, however, continues to run at above 8% for the rest of the year, as some market participants expect, then the Fed may be forced to raise its terminal rate to 4.5% to 5%.

A longer-than-expected journey to peak rates will prolong the dollar's gallivant higher at a time when deteriorating global growth expectations, Morgan Stanley says, is also proving fertile breeding ground for dollar bids.  "A reduction in investor growth expectations may strengthen USD by impacting risk appetite."

Dollar’s Bullish Reign Won’t Stop Until Fed Pivots, Global Growth Jitters Ease
 

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Comments (8)
Sol Wein
Sol Wein Jun 16, 2022 9:59PM ET
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Not true at all. See exhibit Swiss Frank. They raised by .50 basis and the dollar plunged.
Stephen Fa
Stephen Fa Jun 16, 2022 6:49PM ET
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What happens when the world figures out that $USD is a ponzi scheme?
Robert smith
Robert smith Jun 16, 2022 6:49PM ET
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ALL currencies are Ponzi schemes.
Dre Ray
Dre Ray Jun 16, 2022 5:47PM ET
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hey Bitcoin genius how much did u lose when it dove to 20k? crypto is for those whole don't have the *****for the market, options would make you do-do in your pants .....btw the past week I made over a hundreds
Dre Ray
Dre Ray Jun 16, 2022 5:47PM ET
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it's called a put...
Brad Albright
Brad Albright Jun 16, 2022 5:47PM ET
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You made over a hundreds?
Stephen Fa
Stephen Fa Jun 16, 2022 5:47PM ET
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piker. Bitcoin is a commodity risk asset.
Jimmy Larkin Jr
Jimmy Larkin Jr Jun 16, 2022 5:47PM ET
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I think he meant hundredths
Robert smith
Robert smith Jun 16, 2022 5:42PM ET
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PS. if you want to know when the crash is OVER, don't worry, it will look just exactly like the 2002-2004 bottom. After crashes THIS hard, people don't come back for YEARS. Also the big boys who dumped everything that had, BILLIONS of shares, need TIME to get them all back at bottom, so they'll keep it there for a LONG time, and everyone will be looking DOWN the whole time they are buying. DONT see that long long sideways as a market that CANT go UP. they are STOPPING it as they keep driving it back down to buy more shares for 2 years. See it for what it will FINALLY be, a market that can't go LOWER. and just as everyone won't STOP trying to buy in this crash, NOBODY will want it at bottom, and the ones that do will give up when it spends 2 years head faking up.
Robert smith
Robert smith Jun 16, 2022 5:35PM ET
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Guys if you want to see the future, take a good HARD look at what the nasdaq did when the LAST mega run ended with a bang.from about 1988 to 2000 the nasdaq went from like 150 to 4700. but what you really need to look at is what happened in  march of 2000 and how FAST it happened. 4880 down to 797 low in 2002. Thats an unbelievable 84% dive! want to throw away every dime you ever earned? just try buying anytime in the next 18 mths or so. an 84% pullback NOW means a fall to 2668 nasdaq. think thats impossible? just pull up monthly chart and look at moving average. its at about 3000! thats how stupid we got.That 84% crash in 2000? it ALSO was just falling to check monthly moving average!! Don't say you weren't warned, I was THERE for the whole thing. easy money if you understand what's going on.
Robert smith
Robert smith Jun 16, 2022 5:10PM ET
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yes by all means lets talk about anything but the elephant in the room! What you and every other market guru is NOT saying, is that this market crash will not be over until the fed quits raising interest rates. This continued crash that the fed and big boys are using to take back every dime of wealth average Americans have acquired in the last 16 solid years of low and lower interest rates, that ALSO couldn't stop until interest rates QUIT going DOWN. Has now been reversed and along with it the Old "buy every pullback" has reversed and the big boys who understand this VERY simple fact, are making money hand over fist even faster than they made it going UP. but what you won't hear from a SINGLE ONE of them is that we should all be SHORT until the fed quits raising rates. Its as simple as buying was on the way UP with rates  ridiculously low ON PURPOSE to creat this bubble and get ALL American wealth in this dame market so the big boys could take it ALL. 4700 to 980. 80% crash in 2001.
William Lindsey
William Lindsey Jun 16, 2022 5:09PM ET
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Couldn't be wrong again
Ali Ali
Ali Ali Jun 16, 2022 5:06PM ET
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aliyemen
 
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