The prospect of lower US rates has already triggered broad depreciation in the US dollar, as investors recalibrate expectations for interest rate differentials. “Market repricing of expectations for Fed cuts to 59 basis points (bps) by end-2025 pushed interest rate differentials against the USD and led the dollar to depreciate broadly. We continue to think this process will continue over the next year,” the duo adds.
Asian markets are set to benefit from a weaker US labour market, which has heightened expectations of interest rate cuts by the US Federal Reserve. The latest payroll data from the US showed job gains of just 75,000 in July, with sharp downward revisions for May and June, underscoring a slowdown in hiring momentum.
“We see a possibility that the Fed could cut the Fed Funds rate at its September meeting if the labour market weakens further in August. However, we judge October or December as more likely. The Fed probably needs the US unemployment rate to rise to about 4.4% from 4.2% in July to justify cuts,” according to Vis Nayar, Chief Investment Officer and Ray Farris, Chief Economist at Eastspring Investments in a CIO Views Weekly Bulletin dated Aug 4.
