By Sarupya Ganguly
BENGALURU, Sept 2 (Reuters) – The U.S. dollar will hold firm over coming months but trade weaker in a year, according to a Reuters poll of FX strategists who also broadly said the Federal Reserve would not raise interest rates as much as is currently priced in by markets.
Sparse policy guidance from Fed Chair Kevin Warsh, who gave relatively hawkish remarks last week, has left forecasters little reason to revise long-held calls for the dollar, up about 1.5% year-to-date, to weaken.
The greenback sold off briefly in August after U.S. Treasury Secretary Scott Bessent surprised markets with news of unscheduled long-dated bond purchases. It has recovered in recent days following renewed military conflict between the United States and Iran.
Interest rate futures are now betting the Fed will hike rates twice this year to tame inflation, last reported at nearly twice the Fed’s 2% target.
But currency strategists’ forecasts for dollar weakness have barely budged since the August poll. Medians from the August 31 to September 2 poll showed the euro holding its current $1.16-level in three months, $1.17 in six and $1.18 in a year.
Dan Tobon, head of G10 FX at Citi, said “for me, the most important thing is going to be the repricing for the Fed”.
“But if the conflict becomes a bigger factor tomorrow and for the next few months the dollar will go up and we’re going to be wrong. That’s why there’s such a big divergence — it’s really hard to know what the main thing driving markets over the next couple of months is going to be.”
The benchmark 10-year Treasury yield hit a near-three-year high of about 4.82% on September 2, not long after news that total U.S. debt topped $40 trillion last month. This comes amid concerns about too much AI-related borrowing by companies alongside rising government issuance globally.
“There’s a story of dollar depreciation over the short- to intermediate-term,” said Vincent Reinhart, former Fed staffer and now chief economist at BNY Investments.
“The Fed is not going to tighten in the way currently priced into markets and the Treasury will be active in trying to keep longer-term yields down. Neither are conducive to dollar assets,” he said.
Net long dollar positions held by traders have tumbled further from an 11-year high in recent weeks, according to Commodity Futures Trading Commission data.
Asked how dollar positioning will change by end-September, nearly 73% — 40 of 55 strategists — said there would not be much change or dollar longs would decrease.
Strategists were split when asked what was the greater risk to their U.S. dollar forecasts in the coming three months.
Slightly over half — 34 of 66 — said there was a greater chance the dollar would trade weaker than their three-month forecasts, than stronger. The rest said the opposite.
Most forecasters said their FX views were anchored to sparse guidance on what the Fed will do with interest rates.
“We continue to do this ping-pong of who is Kevin Warsh? A hawk? A dove? We’ve seen both extremes of that trade,” said Erik Nelson, Wells Fargo’s global head of FX strategy.
“People are projecting their views of who he is…because he’s said nothing — well, almost nothing.”
(Other stories from the September Reuters foreign exchange poll)
(Reporting by Sarupya Ganguly; Polling by Mumal Rathore and Nushaiba Iqbal; Editing by Hari Kishan, Ross Finley and Gareth Jones)
