Although market expectations for the Federal Reserve to raise interest rates have been greatly reduced, Goldman Sachs remains firmly bullish on the U.S. dollar.

Market expectations for the Federal Reserve to raise interest rates next week weakened after Fed Governor Lael Brainard made dovish remarks. Speaking on the U.S. economy in Chicago on Monday, Brainard said the Fed should remain cautious and not raise interest rates too quickly.

Joe Manimbo, senior market analyst at Western Union Business Solutions, said in an interview with Reuters: "Dollar bulls' expectations for a rate hike in September have weakened, and now they are setting their sights on December." ”

Chicago Mercantile Exchange interest rate futures data showed on Tuesday that traders expected the probability of the Federal Reserve to raise interest rates next week to be only 15%, and the probability of raising interest rates in December to be more than 55%.

However, according to Bloomberg, although futures market quotations indicate that the possibility of the Federal Reserve raising interest rates next week has decreased, the rise in U.S. Treasury yields has boosted the attractiveness of the U.S. dollar relative to other major currencies. The Bloomberg Dollar Spot Index, which tracks the greenback against ten major currencies, rose 0.7% on Tuesday, hitting its highest level since August 31.

As traders lowered their expectations for the pace of interest rate hikes by the Federal Reserve, the U.S. dollar has fallen 3.7% against major currencies this year. However, Goldman Sachs, which has been bullish on the U.S. dollar since 2014, still insists on its bullish forecast for the U.S. dollar.

A team of strategists at Goldman Sachs Group, led by Robin Brooks, said in a report released on Tuesday that the Fed's tightening cycle is expected to last until the end of 2019, during which the Fed will raise interest rates by 3 percentage points; based on this forecast, the dollar is expected to strengthen by 15%. Derivatives market quotes suggest the Fed will raise interest rates by about 50 basis points during that period, according to data compiled by Bloomberg.

Brooks wrote that given how dovish the market is in pricing, the resistance to a U.S. dollar rise is very low, but the threshold for a U.S. dollar decline is quite high.

Boris Schlossberg, managing director of foreign exchange strategy at BK Asset Management, also said that the Federal Reserve will obviously raise interest rates, which will promote the appreciation of the U.S. dollar.

Meanwhile, concerns that a global crude supply glut will continue into next year have dragged oil prices lower, causing the U.S. dollar to strengthen against the currencies of commodity exporters such as the Australian and New Zealand dollars. Iron ore futures fell to near two-month lows on Tuesday, while U.S. crude oil futures fell below $45 a barrel.

The Australian dollar hit a new low in nearly seven weeks against the U.S. dollar, trading at 0.7457 Australian dollars per Australian dollar. The New Zealand dollar hit its lowest in more than a week against the U.S. dollar, hitting $0.7238.

Nikkei's report that the Bank of Japan may further expand negative interest rates boosted the trend of the dollar against the yen. The Bank of Japan will hold a policy meeting on the same day as the Federal Reserve. Goldman Sachs recommends investors go long the U.S. dollar against the Japanese yen and Canadian dollar.

As of press time, the U.S. dollar rose 0.37% against the yen to 102.93 yen. The dollar was little changed against the euro.