According to a Reuters poll of foreign exchange strategists, a strong U.S. dollar is expected to maintain the status quo in the near term, with markets anticipating a delay in the Federal Reserve’s first interest rate cut to the second half of the year. Despite a weakening trend late last year, the dollar has strengthened against nearly every currency tracked by traders and investors, posting a gain of nearly 2.5% for the year.
The recent strength of the greenback is attributed to a robust U.S. economic performance and diminishing expectations for early Fed rate cuts. The timing of potential rate cuts is anticipated to have a significant impact on the currency’s movements in the coming months.
Shaun Osborne, chief currency strategist at Scotiabank, remarked that over the next three months, the dollar is likely to remain within the ranges observed since the beginning of the year. He suggested that if the scenario unfolds as a “no-landing” instead of a soft landing, it could diminish opportunities for Fed rate cuts throughout the year, thus supporting the relative strength of the dollar.
Despite an increase in net long dollar bets among speculators, analysts are divided on the outlook for the next three months, according to a Reuters poll. While a slim majority of analysts expect not much change in positioning, others anticipate a decrease in net longs or even a reversal to net shorts.
Dan Tobon, head of G10 FX strategy at Citi, noted that investors have been seeking trades that minimize exposure to the dollar. He suggested that while the dollar may marginally weaken over the next three months, significant flows are unlikely to result in stretched positioning.
Although currency strategists still foresee the dollar weakening against most major currencies over a 12-month period, median forecasts indicate no significant deviation from previous predictions. The euro, currently down approximately 1.5% for the year, is expected to gain 3.0% over the next year, trading around $1.12. The Japanese yen, despite its recent depreciation, is forecasted to strengthen by over 9.0% in 12 months, trading at 137.00 against the dollar.
The Australian and New Zealand dollars, which struggled against the greenback in 2023, are predicted to rebound. The Australian dollar, currently trading around $0.65, is forecasted to rise to $0.70, while the New Zealand dollar is expected to increase to $0.64.