Vanguard Group shifts to bullish on the US dollar due to market overbetting on Fed rate cuts
Vanguard Group bought US dollars this week, believing that the market's bet on the Fed rate cut is excessive, and closed the short interest position in the US dollar established in July. The company expects the Fed's rate cut to be lower than market expectations, believing that economic data remains strong. Vanguard Group is slightly bullish on the US dollar, inclined to bet on the US dollar against the Swiss franc, and insists on being long on the British pound against the euro. Pimco's Chief Investment Officer also stated that market expectations for rate cuts may be overly optimistic
According to the Wisdom Financial APP, one of the world's largest asset management companies, Vanguard Group, bought the US dollar this week because it believes that the market's bet on the Fed rate cut is excessive.
Vanguard Group closed its short interest position in the US dollar established in July, as the company expects the Fed's easing cycle to be less aggressive than the market anticipates. The company manages $1.7 trillion in actively managed funds. Ales Koutny, Vanguard Group's international interest rate manager, stated that this decision is not dependent on whether the Fed will cut rates by 25 basis points or 50 basis points later on Wednesday Eastern Time.
Koutny said, "We have seen a significant increase in short positions on the US dollar, but US economic data remains strong. Unless the data significantly deteriorates from now on, we believe that the Fed's rate cut will be less than what the market expects."
For weeks, the magnitude of the Fed's first rate cut in four years has been dominating the bond market. Bloomberg Opinion columnist and former New York Fed President William Dudley believes that in the current economic environment, the Fed may cut rates by 50 basis points on Wednesday.
Koutny, on the other hand, expects the Fed to cut rates by 25 basis points on Wednesday and believes that there is no need to cut rates to avoid a recession. Forward contracts indicate a 52% probability of the Fed cutting rates by 50 basis points on Wednesday, with a total cut of 114 basis points by the end of the year.
Vanguard Group is currently slightly bullish on the US dollar and is inclined to bet on the US dollar against the Swiss franc, as the currency pair is expected to rise from around 0.84 to 0.90. The company insists on being bullish on the British pound against the euro rather than against the US dollar.
Meanwhile, Daniel Ivascyn, Chief Investment Officer of Pacific Investment Management Company (Pimco), also stated, "Regarding the recent rate cuts, the market may be a bit ahead of itself. In the coming months, there is a risk of a certain inflation reacceleration, which may result in a rate cut less than what the market is pricing in."