BENGALURU (Reuters) – The U.S. dollar is set to clear its recent weak period unscathed and remain dominant because the number of reasons supporting it, including its safe-haven status, still strongly outweigh any reason to sell, according to a Reuters poll.
Risk assets, which had their worst start to the year since the COVID-19 outbreak in 2020, pushed the dollar to a nearly two-decade high last month.
A minor rebound in stocks last week partly held the dollar back from retaking those levels and got many talking about a snap in the trend. But most say it’s too soon to discuss that.
“I can read reports on the screen that talk about the return of risk and stock market analysts are again enthusiastic. I don’t buy it…they’re just little bright spots amongst what is a bout of poor news, and a selloff in the dollar will be relatively short-lived in this environment,” said Jane Foley, head of FX strategy at Rabobank.
Indeed, a near two-thirds majority of strategists, 28 of 44, said the dollar’s recent pullback would last less than three months.
Among those, 16 said it would die down as early as end-June. Six said three to six months, three said six to 12 months. The remaining seven chose over a year.
Reuters Poll- Currency market outlook https://fingfx.thomsonreuters.com/gfx/polling/egvbkwerypq/Reuters%20Poll-%20Currency%20market%20outlook.png
The dollar’s unique combination of being both a safe haven and a way to pick up yield from higher interest rates is unmatched and won’t be dislodged any time soon.
“USD provides safety, yield and growth,” said Jamie Fahy, global macro and asset allocation strategist at Citi, adding “the Fed still seem like the stand-out hawks” versus its peers the European Central Bank, Bank of England and Bank of Japan.
Those overarching factors were likely to keep the dollar well-bid in the near-term.
The latest positioning data from the Commodity Futures Trading Commission (CFTC) showed speculators were net long on the U.S. dollar. The trend that started nearly a year ago was expected to stay in place.
Nearly a two-thirds majority of analysts, 25 of 39, who answered an additional question said strategies of going long the dollar and shorting either emerging or major currencies would dominate trading over the next three months.
But the wider poll of nearly 60 currency strategists reiterated the view the dollar will weaken marginally over the 12-month horizon.
While the euro, the Japanese yen, the British pound and the Swiss franc were forecast to gain against the dollar over the next 12 months none were expected to recoup their year-to-date losses.
The dollar’s nearest rival, the euro, was expected to gain about 4.0% to reach $1.11 in a year. But for years it has moved in the opposite direction.
Explaining that entrenched view, Rabobank’s Foley said “when you move out into longer-term horizons, three-year, five-year horizons, we tend to move (forecasts) towards fair value levels.”
