Interest rate hikes by the United States Federal Reserve would only guarantee strength for the greenback in the near term before reserve currencies such as euro and yen outperform it, a JPMorgan economist said Wednesday.
Sally Auld, chief economist and head of fixed income and currency strategy for Australia and New Zealand at JPMorgan, said some of U.S. President Donald Trump's campaign rhetoric, if taken to fruition, could be damaging to the currency.
Her comments came ahead of a Fed decision that is widely expected to result in a rate hike. The U.S. central bank started its two-day monetary policy meeting on Tuesday, and will release its post-meeting statement and hold a news conference on Wednesday.
JPMorgan expects to see four interest rate hikes this year.
"We're not particularly bullish on U.S. dollar over the medium term but we do acknowledge that there's probably scope for a couple of percent more rally in the U.S. dollar near term," she said on CNBC's "Street Signs."
"Our sense at JPMorgan is that we're not going to see dollar strength ride through 2017. In fact, we believe that around mid-year, mid-2017, we're going to see… the focus shift away from what's going on with U.S. monetary policy towards what's going on with European and Japanese monetary policies. So, our forecasts reflect the scope for reserve currencies like the euro and the yen to outperform the U.S. dollar."
Auld said the bank sees further upside for the euro given the "more hawkish tone" adopted by European Central Bank (ECB) President Mario Draghi in a recent statement. She said she expects the ECB to start lifting rates in 2018 "if everything goes according to plan."
On the British pound sterling, JPMorgan expects the currency to weaken in the next one to two years due to the risk that the United Kingdommay experience a "disruptive exit" from the European Union.
CNBC
Read more:
25 Canada Square, Level 33, office 50, Canary Wharf London, E14 5LQ +44 20 3608 6256
World Financial Markets - 0700 17 600 Varchev Exchange - 0700 115 44
Varchev Finance Ltd is registered in the FCA (FINANCIAL CONDUCT AUTHORITY) with a passport in the United Kingdom: FCA, United Kingdom - registration number: 494 045, which allows provision of financial services in the United Kingdom.
Varchev Finance Ltd strictly comply with the statutes of the European directive MiFID (Markets in Financial Instruments). targeting increased efficiency, transparency and uniformity of financial instruments.
Varchev Finance Ltd is authorized and regulated by the Financial Supervision Commission - Sofia, Bulgaria: License number RG-03-02-05 / 15.03.2006
The information on this site is not intended for distribution or use by any person in any country or jurisdiction where such distribution or use would be contrary to local law or regulation.
Disclaimer:
CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 63,41% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.