Investing.com – The U.S. greenback retreated from close to six-month highs after Fed Chair Jerome Powell confirmed the central financial institution’s easing bias, elevating the probability of a extra aggressive greenback selloff forward. However, Barclays nonetheless sees the potential for extra greenback upside.
“Parts of the market worry that – like in late 2023 – the bar is too high for further dollar strength. We argue this time things are quite different,” analysts at Barclays stated, in a be aware dated May 1.
Part of the market seems on the build-up of Fed expectations, the rise in greenback longs and the higher development exterior the U.S., as potential drivers of a greenback sell-off forward – a rerun of October 2023, the financial institution famous.
However, it’s totally different this time, Barclays stated, as, against October, U.S. inflation right this moment is accelerating and is hovering at very excessive ranges sequentially. Meanwhile, U.S. front-end charges are under October ranges and the Fed ranks as a much less hawkish central financial institution among the many G10.
Another basic drag for the greenback, the development in China development and associated belongings, is more likely to decelerate meaningfully within the second half of the 12 months, within the view of the financial institution’s Economics workforce.
“Intervention in China (and less so in Japan) has muted price reactions in FX (vis a vis the counterfactual). In that sense, a relative shift in rhetoric among G10 central banks is the nearest likely proxy for a catalyst for the next stage of the dollar rally,” Barclays added.
