BENGALURU- TheUS dollar will remain strong for at least the next three months due to aggressive Federal Reserve interest rate rise expectations and safe-haven appeal stemming from global recession fears, a Reuters poll of foreign exchange analysts showed.
The recent sell-off in risk assets and bond markets is also playing into a broad dollar rally against nearly every other currency, to levels not seen in two decades. Analysts say there is no good reason to expect it to stall yet.
Already up a hefty 7 percent last year, the dollar has soared another 12 percent this year, consistently exceeding nearly every forecaster’s expectations on how long its winning streak would last.
A three-quarters majority of analysts, 37 of 48, in a separate question from the July 1-6 Reuters FX poll expect that trend to continue for at least another three months.
Of those, 19 said three to six months, 10 said six to 12 months, four said at least a year and four said at least two years. Only 11 respondents said less than three months.
Yet despite near-term strength, the median forecast from the latest poll of nearly 70 analysts doggedly clings to a long-held view that the dollar will weaken in the coming 12 months, despite the euro now trading at its weakest in two decades.
“Ultimately, people who say the dollar is going to weaken because the market is not pricing in as many interest rate hikes from the Fed as before are forgetting that the dollar is also a safe haven,” said Jane Foley, head of FX strategy at Rabobank.
Foley also wondered what currency people would buy if they sold the dollar when there is a potential recession on the way.
While the lack of alternatives is likely to keep the dollar well-bid against nearly all currencies, the greenback’s strength will be most acutely felt by the ones who have little to no interest rate backing them.
Indeed, the euro, the Japanese yen and the British pound, whose central banks have either not hiked rates or failed to keep up with the Fed’s aggressive policy tightening, have weakened by double-digit percentages this year. – Reuters
