By Hari Kishan
BENGALURU, October 1 (Reuters) -The U.S. dollar, under pressure since the start of the year, may struggle to find its footing against most major currencies over the coming 12 months, according to a Reuters poll of FX strategists who said the already crowded short U.S. dollar trade will remain.
Against the backdrop of rising U.S. fiscal deficit and worries that the Federal Reserve’s independence was eroding, global investors have dumped the dollar for other major currencies and assets like gold which has surged more than 47% this year, setting record highs, on safe-haven demand.
“The U.S. fiscal situation is this ongoing 800-pound gorilla of the markets, that special status means you can’t just go into other currencies – you go into gold,” said John Hardy, head of FX strategy at Saxo Bank.
“Gold is telling you what people think of fiscal pressure…people recognize nobody has a clean shirt. Everyone’s running on a dirty shirt.”
This has weakened the greenback by about 10% for the year, a trend expected to continue as the Fed is forecast to ease policy further to stave off weakness in the labour market. Meanwhile, the European Central Bank is likely done with cutting interest rates.
U.S. non-farm payrolls increased only 22,000 in August. While a separate Reuters poll showed the world’s largest economy probably created 50,000 jobs in September, the U.S. government shutdown which came into effect on Wednesday will delay the jobs report markets were eagerly waiting for.
Still, the overall outlook for the dollar was to stay weak in the near term.
“I’d probably stay out of the dollar unless I’m being tactical,” said Dan Tobon, head of G10 FX strategy at Citi.
A near 75% majority of analysts, 30 of 41, who answered a separate question in the Reuters September 26-October 1 poll expected the net short dollar position to increase or the current positioning to not change much by the end of October.
Latest data from the Commodity Futures Trading Commission showed the short-dollar trade which began in April of this year was firmly in place.
“The dollar can weaken further over the next six to 12 months as the Fed continues to cut rates while other major central banks like the ECB indicate they’re close to or at the end of their rate cycle,” said Lee Hardman, senior currency analyst at MUFG.
“The dollar weakened a bit in response to the shutdown, but in terms of the big picture I don’t think it changes a great deal. For now, I think the market’s just got to assume its status quo and the Fed will remain on track to cut rates at the end of this month, even if they don’t have data over the next week or two to analyze.”
On September 17 the Fed lowered its benchmark interest rate by 25 basis points to 4.00%-4.25% and indicated more cuts would follow at meetings in October and December.
Interest rate futures are pricing in a 95% chance of a cut in October, per the CME FedWatch Tool.
The poll of nearly 80 forex strategists showed the dollar weakening against all major currencies over the next three, six and 12 months.
A more than 70% majority of analysts, 33 of 45, who answered an additional question said the U.S. dollar was more likely to end 2025 weaker than they expected rather than stronger. Twelve said stronger.
The euro, which has gained more than 13% against the dollar for the year, was expected to strengthen 1.5%-3.0% to trade around $1.19, $1.20 and $1.21 in the next three, six and 12 months respectively.
Among other major currencies, the Japanese yen was predicted to gain around 6% in a year to 139/dollar and the Aussie and the Kiwi dollars were expected to gain about 4.0%-6.0%.
(Other stories from the October foreign exchange poll)
(Reporting by Hari Kishan; Polling by Aman Kumar Soni and Mumal Rathore; Editing by Hugh Lawson)
Comments