The US dollar has been in turmoil. The reason for high volatility is the Federal Reserve’s announcement of an oversized rate cut of 50 basis points on September 18. However, the greenback is not giving up. Analysts from the major bank US Barclays believe that the worst for the dollar is over and it has completed its bear trend.

According to the bank's experts, changes in the US monetary policy outlook, along with global economic conditions, suggest that the US dollar will trade steadily in the coming months, even though the Federal Reserve began its rate-cutting cycle.

For several months, market participants were betting on a jumbo rate cut by the Federal Reserve. These expectations came true, driven by the slowdown in the US economy and the dovish tone of the Fed policymakers.

Nevertheless, Barclays’ analysts believe that the most of the dollar’s decline has already occurred. The lion's share of the greenback's weakening usually happens before the Fed’s easing cycles, the experts note.

Commonly, the US dollar hits bottom after the first rate cut, as the market begins to reassess economic prospects. Currently, the market has been following this pattern, as investors have priced in further rate cuts and the short-term dynamics of the greenback.

However, as the rate-cutting cycle progresses, traders and investors revise their estimates. If the US economy avoids a serious recession, the Federal Reserve will cut interest rates more cautiously than expected. As a result, the US dollar could stabilize or even strengthen.

In the case of a milder economic slowdown, the greenback typically recovers once the market realizes that the Federal Reserve is stepping back from fast rate cuts.

Barclays' analysts highlight several factors that will limit further US dollar’s declines. One of them is the likelihood of a US recession. If the American economy falls into a recession, the national currency will strengthen. This scenario could take place as investors flee to safe assets, primarily the US dollar.

In a risk-averse environment, the greenback will strengthen, especially against emerging market currencies. Besides, geopolitical tensions in Europe and China could also support the dollar. Barclays’ analysts draw attention to the risks related to trade relations between Washington and Beijing. At the same time, concerns about political stability in Europe may prevent the US dollar from further weakness.

The looming US presidential elections are contributing to increased volatility in global markets. This event will entail changes in trade policy, indirectly supporting the US dollar. Another key factor boosting the dollar is a protracted malaise in China’s economy. So, the yuan’s weakening will provide extra support for the greenback, Barclays believes.

The bank predicts a slight decline in the US dollar, but its scale will be modest. The updated forecasts assume the US dollar’s moderate weakening in the fourth quarter of this year, but a decline will be followed by a recovery, the analysts summarize.

Barclays’ experts believe that the dollar’s overall downtrend is coming to an end, despite occasional bursts in volatility.