Stephen Jen, CEO of Eurizon SLJ Capital Ltd., the founder of the "dollar smile theory", released a report in early April saying that as the US inflation rate gradually cools down, the Federal Reserve may start a cycle of interest rate cuts soon, so Stephen Jen expects that the U.S. dollar will continue to weaken, and the U.S. dollar may depreciate by another 10% to 15% on the current basis in the next year and a half.
Some professional institutional investors expect the US dollar to weaken further from 20-year highs hit last year, largely because investors expect the Fed's easing cycle to weigh on the greenback relative to other major currencies. According to the latest survey by MLIV Pulse, about 87% of the 331 interviewed institutional investors expect the Fed to cut interest rates to 3% or lower, and some investors have more aggressive expectations than this figure, about 40% of the group believes that the Fed will start an easing cycle this year. These expectations stand in stark contrast to market pricing, which sees an implied policy rate of around 3.05% two years from now.
In addition, investors are seriously considering the risk of a broader global shift from the dollar to other currencies, known as "de-dollarization". Most respondents expect the dollar to account for less than half of global foreign exchange reserves within a decade.