Buying opportunity coming? Analyst: US dollar may weaken further

According to the financial news app Zhitong Finance, on the eve of the widely anticipated interest rate cut by the Federal Reserve, the US dollar continued to weaken. Depending on the extent of the rate cut by the Federal Reserve, the US dollar may further weaken, or it could present a buying opportunity. Measured by the ICE US Dollar Index, the US dollar was trading near its yearly low on Monday, at around 100.77 points, significantly down from 106.26 points in April. Compared to the Japanese yen, the US dollar depreciated to its lowest level in over a year on Monday. The main reason driving the decline of the US dollar is the market's widespread belief that the Federal Reserve will implement the largest rate cut in 16 years on Wednesday. Based on market-implied probabilities, there is over a 50% chance that the Federal Reserve will cut rates by 50 basis points on Wednesday. Following arguments by Greg Ip, a commentator for The Wall Street Journal, the expectation for a significant rate cut rose to 63% on Monday, and former New York Federal Reserve Bank President Bill Dudley also expressed his expectation for a substantial rate cut. Meanwhile, the probability of a 25 basis points rate cut decreased from 50% on last Friday to 37%. Joe Tuckey, the foreign exchange analysis director at Argentex, a London-based provider of foreign exchange risk management and payment solutions, stated that if the Federal Reserve cuts rates by 50 basis points on Wednesday, it "may push the US dollar to new lows," while a 25 basis points cut "may not trigger significant currency fluctuations." Tuckey pointed out in an email on Monday that the demand for a significant rate cut essentially reflects concerns about economic growth and future economic difficulties. The movement of the US dollar is closely related to the growth prospects of the United States, the direction of interest rates set by the Federal Reserve, and changes in interest rates in other countries worldwide. The reason for the US dollar's depreciation against the Japanese yen is the market's widespread expectation that the Bank of Japan will raise rates again before the end of the year. The Bank of Japan had already increased borrowing costs in July and ended its negative interest rate policy in March. The Bank of Japan will announce its next monetary policy steps on Friday, two days after the Federal Reserve's decision. The uncertainty surrounding the extent of the Federal Reserve's rate cut is increasing, which is an unusual development as Federal Reserve officials have been committed to clear communication, and the two-day Federal Reserve meeting will begin on Tuesday. The Federal Reserve has kept rates at a high of 5.25% to 5.5% for over a year, the highest level in 23 years. Traders are currently focusing on two main scenarios. One believes that a 50 basis points rate cut is needed, the first significant rate cut since the 2008 financial crisis, to prevent the US from entering a recession and to prevent borrowing costs from becoming too tight as inflation slows down. The other view is that significant rate cuts are usually reserved for emergency situations, and since the US economy remains robust, the likelihood of a 25 basis points rate cut is higher, allowing the Federal Reserve to act in a more gradual manner Including Mark McCormick, the strategy team at Morgan Stanley pointed out: "The Fed looks ready to start cutting interest rates, the key question is whether it will be 25 basis points or 50 basis points." The team stated that although the dot plot and the Fed's tone will dominate market trading before and after the event, data will be more important than words in the coming weeks and months. They also added that the dollar is currently "closely tracking" U.S. growth expectations. In discussions with clients at Morgan Stanley, the main topic revolves around whether there is further room for the dollar to weaken after the Fed starts cutting interest rates, or if this is a buying opportunity. The strategy team wrote in their report on Monday: "We tend to believe that there is a buying opportunity for the dollar in the coming months, with the Fed likely starting with 25 basis points and leaning towards caution." Furthermore, the team believes that the positioning of the dollar is now clearer and that the differentiation in global central bank policies has reached its limit