FX strategists polled by Reuters expect the US dollar to give up most of its recent gains over the coming year, even after a rally of more than 3% in the greenback since early September. Near term, though, an 80% majority sees the dollar more likely to beat forecasts than miss them, as a September Fed rate hike and the worst Treasury sell-off since 1994 keep the currency supported.
FX strategists polled by Reuters expect the US dollar to give up most of its recent gains over the coming year, making only minor revisions to their long-held weak-dollar views despite a rally of more than 3% in the greenback since early September. Yet in the near term, an 80% majority of respondents said the dollar was more likely to beat their three-month forecasts than fall short, suggesting the potency of the dollar's rise may be starting to sink in as global bond markets convulse.
Fed hike and bond sell-off fuel the rally
The dollar's advance follows a Federal Reserve interest-rate hike in September. Rate futures markets at one point priced in nearly four more increases, and Treasuries suffered their worst sell-off since 1994 last quarter, with both 10-year and 30-year yields climbing to near-25-year highs this week.
Much of the dollar's strength traces back to Fed Chair Kevin Warsh's focus on bringing down inflation. Price growth has run above the Fed's 2% target for over five years.
Oil has stayed above $100 a barrel as the US-Israeli war on Iran, now in its eighth month, shows no sign of ending. TD's Bharadwaj, like others in the survey, expects the Federal Reserve to hike less than markets are pricing.
Forecasters still see the euro climbing
Jayati Bharadwaj, head of FX strategy at TD Securities, said the dollar can stay a little stronger in the very near term, but that a six-month to one-year horizon still points to a bearish-dollar regime. Kenneth Broux, head of corporate research for FX and rates at Societe Generale, sees the dollar sliding only once higher rates slow the US economy, which grew at a far-above-consensus 2.2% annualized rate in the second quarter.
A minority sees the rally holding
Reuters polling data show FX forecasters have called for dollar weakness on a six-to-12-month horizon for at least half a decade, getting it wrong as a group most of the time over the last two years of monthly polls. Paul Mackel, HSBC's global head of FX research, is among the few forecasters to call the stronger dollar correctly this year and expects the currency to extend its gains as long as markets expect the Fed to keep raising rates.
Mackel said: "The dollar is once again looking like the cleanest dirty shirt", expecting strength at least through the first half of 2027. He rejected the consensus view of eventual weakness, arguing forecasters have long carried a bias that the currency must fall, relying on a framework that overlooks short-term interest rates and the resilience of the US economy.
Source: Investing.com (Reuters)
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