Key facts
- Most FX strategists polled by Reuters expect the US dollar to shed most of its recent gains within a year.
- A majority of forecasters believe the dollar is more likely to exceed near-term forecasts than fall short.
- The dollar's recent strength is attributed to a September Federal Reserve rate hike and rising Treasury yields.
- Forecasters have maintained bearish dollar views for at least half a decade, often getting it wrong.
- Median forecast sees euro at $1.14 in one month, $1.15 in three and six months, and $1.16 in a year.
Foreign exchange strategists polled by Reuters largely maintain their bearish outlook on the US dollar, expecting it to relinquish most of its recent gains over the next year, despite a significant rally since early September. While a strong majority believe the dollar is more likely to outperform their near-term forecasts than underperform, suggesting the impact of its recent rise is being felt, their long-held weak-dollar views persist.
The greenback has been bolstered by a recent Federal Reserve interest-rate hike and a sharp sell-off in global bond markets, with Treasury yields reaching near 25-year highs. However, FX strategists, who have been wrong about dollar weakness for nine consecutive months in their three-month forecasts, continue to predict a decline.
Median forecasts from nearly 70 strategists anticipate the euro to reach $1.14 in one month, $1.15 in three and six months, and $1.16 in a year. Some analysts, like Jayati Bharadwaj of TD Securities, see near-term dollar strength but maintain a bearish view beyond six months. Kenneth Broux of Societe Generale expects the dollar to slide once higher rates slow the US economy, which grew at a robust 2.2% annualised rate in the second quarter.
Paul Mackel of HSBC, who correctly predicted the dollar's strength, believes it will extend gains as long as the Federal Reserve continues to raise rates, rejecting the consensus view of eventual weakness. Shahab Jalinoos of UBS points to a long-standing market bias against the dollar based on valuation models, suggesting that consistent capital inflows and strong US equity markets create dollar demand that trade-focused models may miss.