Sophia Drossos, strategist and economist at Point72 Asset Management, said the dollar is entering a downtrend as the Federal Reserve begins to lower borrowing costs and as economic conditions in other parts of the world show signs of optimism.
The prospect of a rate cut by the Federal Reserve has weighed on the dollar, which had its worst month this year in August.
The US dollar index accelerated its decline in August
As the dollar continues to weaken, all major currencies around the world will benefit, with the euro and Brazilian real expected to be the biggest winners, Drosos said in an interview in New York.
"This (Fed rate cut) is the beginning of a new trend of a weaker dollar," she said. "As the Fed starts to cut rates and other central banks also cut rates, we will see stronger prospects for global economic growth."
Drosos’s view highlights a growing divide among strategists over the direction of the dollar, with some predicting the greenback will remain strong even after the Fed cuts rates as global economic weakness forces central banks to cut rates faster to stimulate domestic growth.
However, Drosos expects the ECB to cut interest rates more slowly than markets expect, which would benefit the euro.
In Brazil, policymakers are expected to start raising interest rates on Wednesday, which would boost the real. In addition, Drosos noted that the real now looks cheap after this year's sell-off.
On the other hand, Drosos said the outlook for the Mexican peso has become "tricky" due to the passage of a sweeping judicial reform.
Traders are still debating whether the Federal Reserve will begin its monetary easing cycle with a 25 basis point rate cut or opt for a more aggressive rate cut after eight sets of retail sales data unexpectedly rose, pointing to a resilient U.S. consumer.
In response, Drosos expects the Fed to opt for a smaller rate cut, which could cause a knee-jerk reaction in the market as many investors have already digested a more aggressive rate cut.
Article forwarded from: Jinshi Data
