© Reuters. FILE PHOTO: U.S. dollar and euro banknotes are seen in this picture illustration taken May 3, 2018. REUTERS/Dado Ruvic/Illustration/File Photo
By Hari Kishan
BENGALURU (Reuters) – Unfazed by the dollar’s recent strength, analysts polled by Reuters predict a weaker greenback in a year amid an improving global economy and expectations the U.S. Federal Reserve will stop hiking interest rates well ahead of the European Central Bank.
Bucking the latest downward trend, the dollar rose nearly 3% in February, its first monthly gain since September, surprising FX markets which were betting on the currency to remain on the back foot for the remainder of the year.
The is up over 1% for 2023 largely because of stronger-than-expected U.S. economic data and a corresponding change to expectations of interest rate hikes by the U.S. central bank.
“You’ve had this recent hawkish repricing of Fed rate hike expectations … which obviously helped the dollar to rebound in February. So we can certainly see that being sustained in the very short term,” said Lee Hardman, a currency economist at MUFG.
“Beyond that, though, we still are sticking to our view for further dollar weakness through the rest of this year.”
The dollar was forecast to trade lower than current levels against all major currencies in the next 12 months, according to the Feb. 28-March 2 poll of 69 currency specialists.
While analysts have been predicting a weaker dollar 12 months out for over five years, their predictions only came true in 2020 when the currency weakened more than 6.5%.
There was also no clear consensus among analysts in the poll over dollar positioning, which turned net short dollar last November.
When asked what change in dollar positioning they predicted by the end of March compared with the last available data from the end of January, analysts were mostly split.
While 11 of 39 expected a decrease in short positions, 10 said they would be around the same. Among the remaining 18, a dozen forecast a reversal to net long positions and six predicted an increase in net short positions.
“The positioning certainly is more neutral or has been scaled back because the conviction in the short term is not strong over dollar moves,” MUFG’s Hardman added.
The euro was forecast to trade around $1.07, $1.08 and $1.10 in the next one, three and six months, respectively. It was then expected to strengthen around 6% to change hands at $1.12 in a year. It was last trading around $1.06 on Thursday.
Even the British pound, which dropped more than 10% last year, was expected to claw back around half of those losses in 12 months.
Sterling was predicted to rise from its latest level of $1.19 to $1.22, $1.23 and $1.26 in the next three, six and 12 months, respectively.
“I think you’re going to see people saying, ‘well, what do I want to buy if I don’t want to be in dollars? I think the dollar’s topped out but I’m not confident in that. Where do I want to be?'” said Gavin Friend, senior markets strategist at NAB.
“I think Europe would be one of those, UK would be one of those because it’s been so cheap,” he said.
(For other stories from the March Reuters foreign exchange poll:)
Dollar stabilizes near five-week high ahead of more debt ceiling talks
Investing.com – The U.S. dollar stabilized in early European trade Tuesday, just off a five-week high helped by its safe haven status as the standoff in Washington over the U.S. debt ceiling continued.
At 03:15 ET (07:15 GMT), the , which tracks the greenback against a basket of six other currencies, traded largely flat at 102.250.
The potential for a U.S. default of its debts if a deal is not done to lift the country’s borrowing limit, which Treasury Secretary Janet Yellen reiterated could be hit as soon as June 1, has helped the dollar push higher of late, with traders seeking the greenback given it is often used as a safe haven in times of stress.
The main parties are expected to meet once more later Tuesday, with President Joe Biden expressing confidence a deal can be done, but Republican House of Representatives Speaker Kevin McCarthy said on Monday that the two sides were still far apart.
“Unless we see truly encouraging progress, investors’ fears may keep growing,” said analysts at ING, in a note. “Barring positive news on this end, we think the balance of risks remains tilted to the upside for the dollar for now, which should see safe-haven flows as risk sentiment stays subdued.”
Aside from this, traders are likely to focus on the release of U.S. data for April, which is expected to show sales grew 0.8% on the month in April, an improvement from the dramatic slump of 0.6% last month.
The raised interest rates last week for a 10th straight time, but hinted that it may be about to pause its aggressive policy tightening as it studies incoming economic data and assesses the impact of the tightening to date.
Inflation remained elevated in April, even if slightly lower than the prior month, and a number of Fed officials have said in separate addresses that interest rates were likely to stay higher for longer if prices continue to remain substantially above the Fed’s 2% target.
Elsewhere, rose 0.1% to 1.0880, after bouncing off a five-week low overnight, ahead of the release of preliminary first quarter for the euro zone.
This is expected to show the region barely scraped growth in the first three months of the year, rising 0.1% on the quarter and 1.3% on an annual basis.
Also of interest will be the for May, which is expected to show a deterioration of sentiment in the eurozone’s largest economy.
fell 0.3% to 1.2494 after the U.K. unexpectedly rose to 3.9% in the three months to March, raising the likelihood of the Bank of England pausing its run of increases when it next meets in June.
dropped 0.3% to 135.78, fell 0.3% to 0.6683, while rose 0.2% to 6.9643 with the yuan trading near a two-month low after Chinese data showed and grew less than expected in April.
rose 0.1% to 19.6861 as Turkey’s presidential race heads to a runoff with incumbent Tayyip Erdogan leading his opposition rival.
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Asia FX dips on weak Chinese data, hawkish Fed comments
Investing.com — Most Asian currencies retreated on Tuesday as disappointing Chinese economic data posited a weak outlook for the region’s largest economy, while hawkish comments from Federal Reserve officials also brewed uncertainty over the path of U.S. interest rates.
fell 0.1% and traded near a two-month low after data showed and grew less than expected in April. The readings, which come on the heels of several weak economic indicators earlier this month, point to a staggered recovery in Asia’s largest economy, even after the country relaxed most anti-COVID measures earlier this year.
The weak data also saw markets positioning for a potential 25 basis point rate cut by the People’s Bank next month, which is likely to fuel further weakness in the yuan. The currency was trading just shy of the psychologically important 7 level against the dollar.
Weakness in China spilled over into other Asian currency markets, particularly those with a high trade exposure to the country. The fell 0.1%, while the led losses across Southeast Asia with a 0.3% dip, as traders also locked in recent profits in the currency.
The fell 0.1%, also coming under pressure from a sharp drop in in the face of rising interest rates and worsening economic conditions.
Sentiment towards risk-driven assets was also rattled by a slew of Federal Reserve officials warning that the bank could still act further to bring down stubborn inflation. said in separate addresses that interest rates were likely to stay higher for longer, with some officials also raising the possibility of more interest rate hikes.
The and steadied near a one-month high on Tuesday, after logging small losses in the prior session. But the greenback still strengthened against the by about 0.1%.
The dollar moved little this week as markets hunkered down in anticipation of more U.S. economic signals this week, starting with and due later in the day.
Several more Fed speakers are also lined up for the week, most notably on Friday.
show that markets are still positioning for a pause in the Fed’s rate hike cycle in June. But traders are also factoring in a small chance of a 25 basis point hike.
The prospect of U.S. rates remaining higher for longer bodes poorly for Asian currencies, as the gap between risky and low-risk yields narrows.
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