Barclays: The US dollar may continue to weaken in the short term and may reverse and rise after 12 months
Barclays research team pointed out in the quarterly report that the US dollar may continue to weaken in the short term due to the impact of the Fed's interest rate cuts, but is expected to reverse and rise after 12 months. The report also mentioned that cyclical currencies in Latin America, Central and Eastern Europe, the Middle East, Africa, and G10 countries may continue to weaken, while low-yield currencies against the US dollar will remain relatively stable. Emerging market fixed income assets are expected to benefit, with terminal interest rates expected to remain neutral or higher. Barclays believes that the threshold for intentionally devaluing the US dollar is relatively high
According to the information obtained from the Wise Finance APP, the Barclays research team has published a quarterly report on foreign exchange and emerging market macro strategies. The report suggests that in the short term, the US dollar may further decline due to the impact of the upcoming Fed rate cut. Based on past experience, the market tends to overestimate the extent of rate cuts during a Fed economic "soft landing" period. Barclays expects the market decline to be limited and may reverse and rise after 12 months. The bank is currently in a phase where the US dollar may continue to decline, but significant volatility may have already passed.
In addition, Barclays research results indicate that cyclical currencies in Latin America, Central and Eastern Europe, the Middle East, Africa, and G10 countries may continue to weaken, but overall, low-yield currencies against the US dollar will remain relatively stable. The bank also found that compared to periods of rising economic recession risks in the past, current volatility premiums are relatively low.
Contrary to emerging market currencies, the report points out that fixed income assets in emerging market countries will further benefit, with terminal rates in emerging markets expected to remain neutral or higher. Previously, the pressure for the US neutral rate to remain "higher for longer" is reversing, giving emerging market central banks more room to ease market reactions. However, Barclays expects emerging market currencies to come under pressure due to reduced interest rate differentials.
Barclays also mentioned that the threshold for intentionally devaluing the US dollar is quite high. This is because low-cost policies (fiscal consolidation and multilateral devaluation) are extremely challenging to coordinate, while the costs of high-cost policies (weakening Fed independence and unilateral intervention) are simply too high