Goldman Sachs Group stated in its latest report that if the Federal Reserve continues to "hold its ground" and maintain interest rate stability, while other countries choose to lower borrowing costs, the US dollar may remain strong for a longer period of time.
Strategists led by Kamakshya Trivedi and Joseph Briggs wrote in this report, "If the Federal Reserve remains stable but more countries and regions decide to continue implementing loose policies instead of waiting for the Fed's action, policy differences may lead to a stronger US dollar for a longer period of time."
In fact, since the beginning of this year, the US dollar has risen against all currencies of the Group of 10 (G10), and Bloomberg's index tracking the trend of the US dollar has risen by nearly 3%.
Policy divergence intensifies
Goldman Sachs analysts predict that Canada, the UK, and the eurozone will cut interest rates in June. And the future trend of global central banks seems to be increasingly as expected by the bank today.
On Tuesday, Federal Reserve officials took turns calling for patience in the timing of the "first rate cut". Director Waller said that we need to see several more months of good inflation data before we can start cutting interest rates; Atlanta Federal Reserve Bank President Bostek pointed out that the Federal Reserve needs to be cautious when approving the first rate cut, and added that he still expects inflation to slightly decline within the year, and a rate cut in the fourth quarter is appropriate.
Michael Barr, the Vice Chairman of the Federal Reserve responsible for regulating financial affairs, also agrees with this view. He said, "At least for me, this means we need to persevere longer than we previously imagined... We need to see more evidence of sustained progress in inflation before we can consider adjusting policy interest rates."
On the same day, Christine Lagarde, the President of the European Central Bank (ECB), hinted that interest rates may be lowered next month as the trend of rapid consumer price growth has been largely contained. She said, "If the data we receive enhances our confidence, there is a high possibility of taking action on June 6th."
"Enduring War"
Goldman Sachs has previously pointed out that despite the Federal Reserve's reluctance to cut interest rates, other central banks may choose to follow the Fed's footsteps in the short term and find it difficult to hastily cut rates. However, in the long run, due to fundamental differences in inflation trends between the United States and other countries, currencies sensitive to policy changes, especially the euro, may eventually fall further.
"As the different inflation trends in various countries continue to affect the market and central bank's response measures, this trend may continue," the bank added.
Goldman Sachs analysts wrote in their latest report, "In a situation where macro policy and potential policy differences are becoming more apparent, policymakers have been closely monitoring the measures taken by the Federal Reserve to limit currency volatility."
"If global central banks start cutting interest rates relatively earlier and more actively than the Federal Reserve, it may help the United States achieve its inflation target," they added.