According to an economist from JPMorgan on Wednesday, interest rate hikes by the U.S. Federal Reserve would only assure strength for the greenback for the short term before reserve currencies like euro and yen surpass it.
Sally Auld, chief economist and head of fixed income and currency strategy for Australia and New Zealand at JPMorgan, stated if some of the rhetoric from U.S. President Donald Trump’s campaign materializes, this could prove detrimental to the dollar.
Her comments came ahead of a Fed decision that is widely expected to result in a rate hike. The central bank of the United States commenced its two-day monetary policy meeting on Tuesday, and will release its post-meeting statement and hold a news conference on Wednesday.
JPMorgan expects to see four interest rate hikes in 2017.
"We're not particularly bullish on U.S. dollar over the medium term but we do acknowledge that there's probably scope for a couple of percent more rally in the U.S. dollar near term," Auld stated on CNBC's "Street Signs."
"Our sense at JPMorgan is that we're not going to see dollar strength ride through 2017. In fact, we believe that around mid-year, mid-2017, we're going to see… the focus shift away from what's going on with U.S. monetary policy towards what's going on with European and Japanese monetary policies. So, our forecasts reflect the scope for reserve currencies like the euro and the yen to outperform the U.S. dollar."
Auld said that the bank sees more upside for the euro given the “more hawkish tone” according to a recent statement by European Central Bank President Mario Draghi. She said that she expects the European Central Bank to start increasing rates in 2018 “if everything goes according to plan.”