USD unable to fully benefit from higher interest rates – Commerzbank

A recession is coming at some point. Given that the Federal Reserve, therefore, will have to cut rates, the US dollar is unlikely to fully benefit from higher interest rates at present, economists at Commerzbank report.

Interest rates to rise significantly in the US short-term

“Interest rates will continue to rise significantly in the US short-term because high inflation levels are the more urgent issue at present.”

“The prospect of a US recession and the resulting prospects of Fed rate cuts next year are the reason why we think that the USD will not be able to fully benefit from higher interest rates.”

“The subject of a recession does not only affect the US. There are also economic concerns in the UK, in the eurozone or in China. This is dampening sentiment on the financial markets and usually USD is able to benefit from periods like that. That means recession fears regarding the US are not necessarily USD-negative. It depends on whether the risk of a recession is also seen for the rest of the world (at least for the major economies).”