A view via HSBC on what to expect if the Federal Reserve cuts rates on or before March 18
Any USD weakness on a cut to be temporary
- says that "relationship between interest rates and FX for many G10 currency pairs has clearly broken down"
- "Ordinarily, in a cyclical world, rate cuts would be associated with currency weakness"
Cites 2019 Fed cuts and a broadly stronger USD. Positives for the USD:
- relative strength of the US economy
- other central banks will be cutting rates
- dollar as a haven when risk-off sentiment
Biggest risk to USD … a "return of the risk-on world"
- "Catalysts for this would be a much larger fiscal expansion in China or the Eurozone, for example. But for now, such policy actions do not appear on the radar"
