Vanguard Is Buying Dollars, Saying Fed Rate-Cut Bets Gone Too Far

Vanguard Group Inc. is increasing its bets on the U.S. dollar, saying the market is underestimating the Federal Reserve’s resolve to keep raising interest rates.

The firm has been adding to its dollar holdings since the end of last year, and now sees the greenback as one of its top currency picks for the next 12 months.

Vanguard’s currency strategists believe that the Fed will continue to raise rates even as the economy slows, and that this will support the dollar.

They also believe that the market is underestimating the risk of a recession, which would further boost the dollar’s safe-haven appeal.

“We think the market is getting ahead of itself in pricing in Fed rate cuts,” said Salman Ahmed, global head of macro at Vanguard.

“We’re not saying that the Fed is going to continue hiking rates indefinitely, but we think they’re going to stay higher for longer than the market expects.”

The dollar has been on a tear in recent months, rising against all of its major rivals.

The U.S. dollar index, which measures the greenback against a basket of six major currencies, has gained more than 10% since the start of the year.

The dollar’s strength has been driven by a number of factors, including rising interest rates in the U.S., safe-haven flows amid geopolitical uncertainty, and a weakening global economy.

Vanguard is not the only asset manager that is bullish on the dollar.

BlackRock Inc., the world’s largest asset manager, also recently said that it sees the dollar as a safe haven in a volatile market.

“We believe that the dollar is well-positioned to continue to strengthen in the coming months,” said Russ Koesterich, BlackRock’s global chief investment strategist.

“The Fed is still in a rate-hiking cycle, and that’s going to continue to support the dollar.”