Interest rate hikes by the United States Federal Reserve would only guarantee strength for the greenback in the near term before reserve currencies such as euro and yen outperform it, a JPMorgan (JPM) economist said Wednesday.
Sally Auld, chief economist and head of fixed income and currency strategy for Australia and New Zealand at JPMorgan, said some of U.S. President Donald Trump's campaign rhetoric, if taken to fruition, could be damaging to the currency.
Her comments came ahead of a Fed decision that is widely expected to result in a rate hike. The U.S. central bank started its two-day monetary policy meeting on Tuesday, and will release its post-meeting statement and hold a news conference on Wednesday.
JPMorgan expects to see four interest rate hikes this year.
"We're not particularly bullish on U.S. dollar over the medium term but we do acknowledge that there's probably scope for a couple of percent more rally in the U.S. dollar near term," she said on CNBC's "Street Signs."
"Our sense at JPMorgan is that we're not going to see dollar strength ride through 2017. In fact, we believe that around mid-year, mid-2017, we're going to see… the focus shift away from what's going on with U.S. monetary policy towards what's going on with European and Japanese monetary policies. So, our forecasts reflect the scope for reserve currencies like the euro and the yen to outperform the U.S. dollar."
Auld said the bank sees further upside for the euro given the "more hawkish tone" adopted by European Central Bank (ECB) President Mario Draghi in a recent statement . She said she expects the ECB to start lifting rates in 2018 "if everything goes according to plan."
On the British pound sterling , JPMorgan expects the currency to weaken in the next one to two years due to the risk that the United Kingdom may experience a "disruptive exit" from the European Union .