Vanguard Group is turning bullish on the US dollar due to the market's excessive bets on the Federal Reserve's interest rate cut.

One of the world's largest asset management companies, Vanguard Group, bought dollars this week because it believes the market has overestimated the bet on a rate cut by the Federal Reserve. Vanguard Group closed out its short dollar positions established in July because the company expects the Fed's easing cycle to not be as aggressive as the market expects. The company has $1.7 trillion in actively managed funds. Ales Koutny, Vanguard Group's international interest rate director, said this decision is not dependent on whether the Fed cuts rates by 25 basis points or 50 basis points later on Wednesday. Koutny stated, "We see a significant increase in short dollar positions, but US economic data remains strong. Unless the data deteriorates significantly from now on, we believe the extent of the Fed's rate cut will be lower than market expectations." For weeks, anticipation of the Fed's first rate cut in four years has been dominating the bond market. Bloomberg opinion columnist and former New York Fed President William Dudley believes that in the current economic environment, the Fed could cut rates by 50 basis points on Wednesday. Koutny, on the other hand, expects a 25 basis points rate cut by the Fed on Wednesday and believes that there is no need to cut rates to avoid a recession. Forward contracts show a 52% chance of the Fed cutting rates by 50 basis points on Wednesday, totaling 114 basis points by the end of the year. Vanguard Group is currently slightly long on the dollar and leans towards betting on the dollar against the Swiss franc as the currency pair is expected to rise from around 0.84 to 0.90. The company is bullish on the pound against the euro rather than the pound against the dollar. Meanwhile, Daniel Ivascyn, Chief Investment Officer at Pimco, also said, "The market may be getting a bit ahead of itself in terms of recent rate cuts. In the next few months, there is a risk of a resurgence in inflation, which could lead to rate cuts being lower than what the market is pricing in."