The Federal Reserve is about to cut interest rates, Invesco is "extremely bearish" on the dollar
In the context of the Federal Reserve's impending interest rate cuts, Invesco recommends "maximizing the reduction" of the US dollar, believing that the dollar will face greater pressure. Senior portfolio manager Alessio de Longis pointed out that the narrowing yield differential and positive economic data outside the United States are reasons for a bearish outlook on the dollar. The market expects the Federal Reserve to cut rates by 25 basis points, with traders anticipating a total cut of nearly 70 basis points by the end of the year. Since Trump announced tariffs, the Bloomberg Dollar Spot Index has fallen by more than 5%
According to the Zhitong Finance APP, Invesco senior portfolio manager Alessio de Longis believes that as the Federal Reserve is about to ease monetary policy, the US dollar will face greater pressure. This move will reduce its yield advantage relative to other currencies. In a report to clients in September, de Longis stated that his team has strengthened its bearish view on the dollar, adjusting from "reduce" to "maximum reduce."
He pointed out that the narrowing yield differential and positive surprises in economic data outside the US are the reasons for this shift. The team's bearish stance on the dollar is the strongest since June 2024.
De Longis wrote: "Although the dollar's yield is still higher than that of other currencies in developed markets, the expected weakening of the dollar's yield advantage has historically created downward pressure on the dollar's performance. This provides a potential impetus for non-US stocks to outperform US stocks, due to capital outflows from the US seeking international diversification and foreign currency appreciation."
Federal Reserve Chairman Jerome Powell's dovish remarks at the Jackson Hole symposium last month helped boost market expectations that the Fed will cut interest rates by 25 basis points at next week's meeting, a move that is now fully priced into the market. Traders expect that by the end of this year, the Fed's rate cuts will approach 70 basis points.
Recent reports about a slowdown in the US labor market have provided more evidence for those anticipating a Fed rate cut. Currently, traders are closely watching the August CPI report to be released on Thursday to assess how much easing the Fed can achieve this year.
Since President Trump announced large-scale tariffs on US trading partners on April 2, the Bloomberg Dollar Spot Index has fallen by more than 5%. Since then, some investors have begun to diversify their investments, no longer relying on the dollar, and have increased measures to guard against exchange rate fluctuations
