The influential investment bank wrote, in a note dated April 19, that as we move into the second quarter, ongoing upgrades to already-robust U.S. growth forecasts give the FOMC the luxury of a later and more gradual policy adjustment.
The bank’s economists still expect that policymakers in most other developed market economies will begin the cycle sooner with sequential rate cuts.
“This opens some policy divergence in our baseline outlook, which leans in the direction of a ‘stronger for longer’ U.S. Dollar,” the bank’s analysts said.
“Importantly for FX, the rate cuts we anticipate are unlikely to be significantly negative for the Dollar because they are unlikely to erode the Dollar’s position as a relatively high carry, safe-haven currency with strong capital return prospects.”
The bank also expects the upcoming U.S. election should also start to impact currency markets more directly, at least by limiting portfolio flows to other jurisdictions when both candidates have proposed more fiscal support and trade restrictions.
As a result, the bank makes a series of adjustments to its forecasts – including cutting its EUR/USD forecasts to $1.05 in three months, $1.05 in six months and $1.08 in a year (from $1.08, $1.10 and $1.12 respectively).
It also lifted its USD/JPY forecasts to ¥155 in three months, ¥155 in six months and ¥150 in a year (from ¥155, ¥150 and ¥145 respectively), and cut AUD/USD forecasts to $0.63 in three months, $0.65 in six months and $0.67 in a year (from $0.68, $0.70 and $0.72).
At 09:10 ET (13:10 GMT), EUR/USD traded at $1.0638, USD/JPY at ¥154.73 and AUD/USD at $0.6434.
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