The US dollar will likely hold around current levels until the Federal Reserve starts signaling that it’s shifting from raising rates to cutting them, according to Charles Schwab strategist Kathy Jones.
"At the moment it’s hard to call a turning point for the dollar until the Fed really signals a turning point,” said Jones, the firm’s chief fixed-income strategist.
The markets are bracing for the conclusion of the Fed‘s meeting later on Wednesday, when it’s expected to deliver what may be the last rate hike in this cycle.
Investors will watch for Chair Jerome Powell to signal if another increase this year is on the table and for how long the rate may stay elevated. He is scheduled to speak after the decision.
While the economy has remained resilient, derivatives markets are pricing in expectations that the central rate will start pushing down rates early next year as growth cools.
"We have a mild recession priced in,” Jones said. "I really haven’t been convinced by the latest data that we’re not gonna see it.”
The dollar, which rallied strongly in 2022 on the back of the Fed’s rate hikes, has since retreated amid expectation that the Fed is nearly done. The Bloomberg Dollar Spot Index fell about 3% this year, while the euro gained more than 3% against the dollar and the pound advanced about 7%.
She said the European Central Bank may finish its hiking cycle "sooner than they would like to admit,” while there is no clarity what the Bank of England would do.
"This has been one of the more unpredictable cycles that I’ve seen in many years,” she said.
