FX strategists polled by Reuters still expect the US dollar to weaken, with the euro forecast at $1.16 in a year. Most of those asked an extra question, however, said the dollar is more likely to beat their three-month forecasts than miss them.
FX strategists in a Reuters survey held to their bearish dollar view ahead of Tuesday's US midterm elections, while naming a more resilient greenback as the main risk. The October 30-November 3 poll showed forecasters barely changed their outlook from early October.
Median forecast puts the euro at $1.16 in a year
Median views from 66 forecasters put the euro, currently around $1.12, at $1.13 in three months, $1.14 in six and $1.16 in a year, about 4% higher.
Yet the group has underestimated the dollar's strength for most of this year. About 60% of strategists who answered an extra question, 17 of 30, said the dollar was more likely to top their three-month forecasts than fall short.
Growth and inflation back the dollar
According to Bank of America FX strategist Alex Cohen: "risks are pointing towards the dollar being held up or more resilient for longer". He cited strong US growth and stubborn inflation that has run above the Federal Reserve's 2% target for nearly six years.
The Fed paused hiking borrowing costs last month after a rise in September, and rate futures price in around two more increases, starting again next month.
Election outcome and Iran war loom over the dollar
Cohen said a strong Democratic showing should be well in the price, while a surprise Republican sweep of both houses of Congress probably sees equities, rates and the dollar all move higher.
The US-Israeli war with Iran, now in its ninth month, has kept oil over $105 a barrel and risks further entrenching inflation pressure. Credit Agricole CIB's Valentin Marinov said investors will focus on any sign the Trump administration could re-escalate the conflict, which would boost the appeal of the dollar.
Meanwhile, speculators are net-long the dollar heading into the vote, according to the latest CFTC data.
Source: Reuters via Investing.com
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