Is the buying opportunity here? Analyst: The US dollar may further weaken.

On the eve of the widely expected rate cut by the Federal Reserve on Wednesday, the US dollar continued to weaken. Depending on the magnitude of the rate cut by the Federal Reserve, the US dollar may further weaken, but also present a buying opportunity. Measured by the ICE US Dollar Index, the US dollar traded close to its lowest point of the year on Monday, at around 100.77 points, significantly down from 106.26 points in April. Compared to the Japanese yen, the US dollar depreciated to its lowest point in over a year on Monday. The main reason driving the US dollar lower is the market's widespread belief that the Federal Reserve will implement its largest rate cut in 16 years on Wednesday. Based on implied probabilities from the market, there is over a 50% chance that the Federal Reserve will cut rates by 50 basis points on Wednesday. Following arguments by Wall Street Journal commentator Greg Ip for a significant rate cut, this expectation rose to 63% on Monday, and former New York Federal Reserve Bank President Bill Dudley also expressed his expectation for a significant rate cut. At the same time, the probability of a 25 basis point rate cut decreased from 50% on Friday to 37%. Joe Tuckey, the head of forex analysis at London-based forex risk management and payment solutions provider Argentex, stated that if the Fed cuts rates by 50 basis points on Wednesday, it "could push the US dollar to new lows", while a 25 basis point cut "might not trigger significant currency fluctuations." Tuckey pointed out in an email on Monday that the demand for a significant rate cut fundamentally reflects concerns about economic growth and future economic difficulties. The trend of the US dollar is closely related to the growth prospects of the US, the direction of interest rates set by the Federal Reserve, and changes in interest rates in other countries. The reason for the depreciation of the US dollar against the Japanese yen is that the market broadly expects the Bank of Japan to raise rates again before the end of the year. The Bank of Japan has already raised borrowing costs in July and ended its negative interest rate policy in March. The Bank of Japan will announce its next steps in monetary policy on Friday, two days after the Federal Reserve's decision. The uncertainty surrounding the magnitude of the rate cut by the Federal Reserve is increasing, which is an unusual development as Federal Reserve officials have been committed to clear communication, and the two-day Federal Reserve meeting will begin on Tuesday. The Federal Reserve has kept rates at a high level of 5.25% to 5.5% for over a year. Traders are currently focused on two main scenarios. One believes that a 50 basis point rate cut is needed, which would be the first significant rate cut since the 2008 financial crisis, aimed at preventing the US from falling into recession, and preventing lending costs from becoming too restrictive with slowing inflation. The other view is that significant rate cuts are typically only used in emergency situations, and the US economy is still strong, so the probability of a 25 basis point cut is greater, allowing the Federal Reserve to act in a more gradual manner. The strategy team at Deutsche Bank, including Mark McCormick, stated: "The Federal Reserve looks set to start cutting rates, the key question is whether it will be 25 basis points or 50 basis points." The team explained that while the dot plot and tone of the Federal Reserve will dominate market trading around the event, data will be more important than words in the coming weeks and months. They also added that the US dollar is currently "closely tracking" expectations for US growth. In client discussions at Deutsche Bank, the focus is mainly on whether the US dollar has further room to weaken after the Federal Reserve starts cutting rates, or if it presents a buying opportunity. The strategy team wrote in their report on Monday: "We tend to think that there could be buying opportunities for the US dollar in the coming months, with the Federal Reserve likely to start with 25 basis points and act cautiously." Furthermore, the team believes that the US dollar positions are now clearer, and that the global central bank policy divergence has reached its limit.