HSBC has reiterated its constructive outlook for the US dollar, saying widening rate differentials and resilient US growth keep the currency on track to grind higher. The bank's view holds even after the Federal Reserve left rates unchanged for a fifth straight meeting.
HSBC has repeated its bullish call on the US dollar, arguing the currency remains on track for further gains no matter the nuances of the Federal Reserve's latest policy meeting. The bank's core view rests on two pillars: widening interest rate differentials between the US and its major trading partners, and continued resilience in US economic activity.
Rate differentials and growth remain the core driver
Together, HSBC said, these two factors should keep the dollar supported in the period ahead. The bank stated plainly that it does not expect its generally constructive dollar outlook to be derailed by recent developments, and it continues to expect modest dollar strength to persist going forward.
Fed narrative shifts from easing to a hiking bias
HSBC has identified a shift in the Federal Reserve's broader narrative, moving from an easing bias toward an explicit willingness to consider raising rates. The bank links that shift to resilient economic data, upside risks to inflation, and a widening gap between US interest rates and those in other major economies.
The Federal Reserve left interest rates unchanged for a fifth consecutive meeting. However, three policymakers dissented in favor of a 25 basis point increase, and HSBC expects debate among Fed officials over further rate hikes to continue through the rest of the year.
Geopolitical risk fades as a dollar driver
Geopolitical risk tied to the US-Iran conflict may still offer sporadic support for the dollar as investors seek safe haven assets during periods of escalation, HSBC said. Yet the bank flagged that currency markets appear to be growing less sensitive to developments in that conflict over time, leaving rate differentials and growth data as the more reliable drivers of dollar positioning going forward.
Even with the Fed's decision to hold rates, HSBC was clear the outcome does not change its dollar view. With rate differentials still widening and US economic activity holding up, the bank said the setup continues to favor a firmer dollar in the months ahead.
Source: Investinglive
Trading involves risk.
Risk Disclaimer
