HSBC: Interpreting the Fed’s Political Leanings May Determine the Direction of the US Dollar

According to a report by Jinse Finance, Paul Mackel, Global Head of FX Research at HSBC, stated that the trajectory of the US dollar may depend on how the market interprets the Federal Reserve’s political leanings. There is uncertainty surrounding the Fed’s next monetary policy move as well as the selection of the next Fed Chair. If the Fed is able to cut rates gradually, this would support HSBC’s core view that the dollar will gradually weaken against a basket of currencies. However, if the market begins to worry about political interference with the Fed, the dollar’s movement could differ, depending on changes in cross-asset volatility and the performance of long-term US bond yields. In adverse scenarios, the dollar may initially weaken against major currencies such as the euro, yen, Swiss franc, and renminbi.