(Bloomberg) -- The US dollar is entering a downward trend as the Federal Reserve starts lowering borrowing costs and signs of optimism emerge in other parts of the world, according to Sophia Drossos, a strategist and economist at Point72 Asset Management.
The outlook for lower interest rates in the US is already weighing on the dollar, which had its worst month of the year in August. All major currencies will benefit as it continues to weaken, with the euro and Brazil’s real poised for the biggest gains, she said in an interview in New York.
“This is the beginning of a new trend of weakening dollar,” she said. “As the Fed starts to cut and other central banks are cutting in tandem, we’ll see a stronger global growth outlook.”
The call by Drossos adds to a growing divide among strategists on where the dollar is headed, with some forecasting it will stay strong as a sluggish global economy forces central banks to speed up rate cuts to goose domestic growth.
Drossos said European central banks will reduce rates more slowly than the market expects, benefiting the euro. In Brazil, policy makers are expected to start hiking on Wednesday, giving a lift to the real, which Drossos said looks cheap after a selloff this year. The outlook for Mexico’s peso, on the other hand, has become “tricky” amid the passage of a sweeping judicial overhaul, she said.
Traders are debating whether the Fed will start its monetary easing with a quarter-percentage point reduction or a bigger cut after retail sales data unexpectedly rose in August, suggesting resilience among US consumers.
Drossos expects the Fed to opt to go small, which is likely to create a knee-jerk reaction as many investors have priced in a bigger step, she added.
(Updates to add detail on Drossos’ role.)
©2024 Bloomberg L.P.
