After anticipated interest rate cuts later in the year, the dollar will remain strong, but will not necessarily rise, an HSBC currency expert has said.

Daragh Maher, HSBC head of research Americas/head of financial exchange strategy, said this should interest Bermudians looking to make their money go further.

“I know a lot of Bermudians send their children to school in the US, Canada or United Kingdom,” he said.

Mr Maher said the start of the year was exciting in terms of shifting expectations around what the Federal Reserve was likely to do with the federal funds rate.

In the currency outlook report Death by a Thousand Cuts, his team looked primarily at the impact of Fed interest cuts anticipated for later in the year.

In the past 16 months, the Fed has raised the interest rate 11 times. Last December it maintained its benchmark interest rate in a range of 5.25 per cent to 5.50 per cent, the highest in 22 years, but indicated it would probably cut interest rates by a total of 75 basis points, this year.

The report states: “The broad US dollar has softened as risk appetite remains buoyant and rate cut expectations have increased again, but it is questionable whether there is enough strength in global activity data to justify more pronounced USD weakness. Sequential inflation and higher neutral rates suggest US policy could stay tighter than priced, but this may take time to play out.”

Mr Maher was concerned about the persisting uncertainty over how the Fed cuts will impact financial markets and currency.

“There are some big moving parts that could change quite materially over the next 12 months,” he said. “I do not think they marketed and priced for that.”

He was on the island earlier this month to report his team’s findings to HSBC, alongside Steven Major, HSBC global head of fixed-income research. They spoke on forecasts and key themes on the macro economy and foreign exchange.

Mr Major said a current high demand for bonds would only increase if the Fed cut interest rates as expected.

“Investors will be expecting even more cuts so it will start to change the shape of the curve,” Mr Major told The Royal Gazette. “It will favour the shorter maturities. The yield on the shorter maturities will fall more in the long term.”

Mr Major said the market was operating in full expectation of there being a soft landing in the United States, meaning the interest rate hikes slow the economy just enough, while reducing inflation, without triggering recession.

“Right now, the United States economy is continuing to perform better than the UK economy and the eurozone economy,” he said. “That has been captured in the exchange rate and a stronger US dollar.”