Goldman Sachs: Global central banks starting an interest rate cut cycle will benefit the strengthening of the US dollar

According to the latest information from the Smart Finance app, Goldman Sachs analysts stated that as other central banks around the world are also implementing monetary easing measures, the upcoming interest rate cut by the Federal Reserve poses limited downside risks to the US dollar. Foreign exchange analyst Isabella Rosenberg mentioned in a report to clients that based on an analysis of interest rate cuts and policy coordination among developed countries since 1995, in fact, such synchronized interest rate cut cycles are usually correlated with a strengthening US dollar.

She wrote: "If most central banks collectively ease monetary policies, we can expect that this will limit the impact of the Federal Reserve's easing on the US dollar." "Although the market expects the Federal Reserve to pivot more quickly, we still believe that if the Federal Reserve allows other central banks the space to do so, they will further ease their policies."

It is expected that the Federal Reserve will cut interest rates for the first time next week, joining the ranks of institutions such as the European Central Bank and the Bank of England that have already begun to ease policies.

As traders are preparing for the Federal Reserve's first interest rate cut, the US dollar has been under pressure recently. In theory, a rate cut by the Federal Reserve will reduce the incentive for investors to purchase US Treasury bonds, thereby weakening the demand for the US dollar.

Rosenberg mentioned that when the Federal Reserve is not in sync with other major central banks, this situation is likely to occur, which usually leads to a weakening or stabilization of the US dollar. However, when US interest rates remain relatively high and the currencies of other countries depreciate, this will to some extent weaken the motivation to sell the US dollar and buy assets elsewhere. Given the US dollar's status as a safe-haven currency, this global coordinated interest rate cut may also signal concerns about economic growth, thereby boosting the US dollar.

She said: "Using a single variable to explain the performance of the US dollar is usually not very successful, and this time the variable is the Federal Reserve's policy direction. Clearly, the relative background of foreign exchange is more important."