Mar 7 2024: Market analysts foresee the U.S. dollar retaining its robust position in the near term, with a potential delay in the Federal Reserve’s initial interest rate cut until the latter half of the year, reveals a recent Reuters poll of foreign exchange strategists.
Despite a weakening trend observed towards the end of last year, the dollar has shown resilience, strengthening against nearly all currencies monitored by traders and investors, registering a nearly 2.5% increase for the year.
The recent upsurge in the greenback’s value is primarily attributed to better-than-anticipated U.S. economic performance and diminishing expectations for imminent Fed rate cuts. The timing of potential rate adjustments is expected to heavily influence the currency’s trajectory in the short run.
Shaun Osborne, chief currency strategist at Scotiabank, remarked, “Over the next three months, I think we’re probably going to see the dollar hold in the ranges we’ve been seeing since the start of the year.” He suggested that a scenario where the Fed refrains from implementing rate cuts significantly throughout the year could sustain the dollar’s strength.
While speculative data indicates a surge in net long dollar positions to levels unseen since last November, opinions among analysts in the Reuters poll conducted from March 1-6 are somewhat divided on the future positioning over the next three months.
Dan Tobon, head of G10 FX strategy at Citi, highlighted investors’ inclination towards trades that minimize reliance on the dollar. He predicted a slightly weaker dollar over the coming three months, but without substantial flows leading to stretched positioning situations.
Although analysts anticipate the greenback to weaken against most major currencies over a 12-month period, median forecasts from the poll indicate minimal adjustments compared to February’s predictions.
For instance, the euro, currently down approximately 1.5% for the year, is forecasted to appreciate by 3.0% over the next year, trading around $1.12. Similarly, the Japanese yen, despite its recent depreciation, is expected to gain over 9.0% against the dollar in 12 months, reaching a rate of 137.00/dollar.
Meanwhile, the Australian and New Zealand dollars, struggling against the greenback in 2024, are projected to recover losses and trade higher in the coming months. The Australian dollar, currently at around $0.65, is anticipated to rise to $0.70, while the New Zealand dollar is expected to reach $0.64 by end-February.
