BMO analyst calls the dollar the best strategy in a rising interest rate environment
BMO Capital expects further dollar strength due to interest rate hikes and high inflation / Photo: Unsplash / Alexander Grey
Betting on further US dollar strength is the most attractive strategy in the new environment of higher interest rates and inflation, says BMO Capital Markets. Expectations of monetary tightening jumped after unexpectedly strong labor market data in May, giving the dollar its best gains in more than two months.
Details
Currency market participants are now "too greedily" betting on a possible end to the U.S.-Iran war, but even if the conflict ends, factors working in the dollar's favor aren't going anywhere, BMO Capital chief currency strategist Mark McCormick wrote in a Bloomberg statement.
"Even if oil gets a little cheaper - which is still a big question - inflation is unlikely to fall as quickly. Secondary effects are forming, and market correlations increasingly favor high rates and a stronger dollar," McCormick said.
Additional support for the dollar is provided by strong macroeconomic data from the United States. After the publication of the May employment report, which exceeded analysts' forecasts, traders began to put in quotations another increase in the Fed rate before the end of the year by 0.25 percentage points, notes Bloomberg. On Wednesday, June 10, the U.S. will release data on inflation for Ma: analysts' forecast suggests an acceleration of the annual rate to 4.2% from 3.8% a month earlier.
BMO maintains long positions - in the expectation of growth - on the dollar against world currencies, in particular, the euro, the British pound, the Japanese yen, as well as the Australian and Canadian dollar. According to the bank's assessment, higher interest rates, slowing economic growth and increasing differences between the economies of different countries will continue to support demand for the U.S. currency.
What a Bloomberg analyst thinks
"Expectations for a Fed rate hike look increasingly resilient thanks to the stability of the U.S. economy amid high oil prices. This supports expectations of a higher neutral interest rate and accelerating inflation in the coming months, which will help the dollar shake off the geopolitical hangover," said Bloomberg macro strategist Tatiana Darier.
This article was AI-translated and verified by a human editor
