Dollar Remains Resilient Amid Growing Uncertainties: Reuters Poll

By Sarupya Ganguly

BENGALURU – The U.S. dollar is expected to remain stable in the upcoming months, despite anticipated interest rate cuts by the Federal Reserve, as indicated by median forecasts from FX strategists surveyed. However, there is a significant division among experts regarding the currency’s overall direction.

Since mid-year, the dollar has retraced nearly all of the almost 5% gains it made against a basket of major currencies due to expectations that the Fed would lower interest rates from previously considered restrictive levels. Nonetheless, the currency has experienced relative stability in recent weeks.

With inflation pressures now viewed as manageable, the Federal Reserve began easing monetary policy last month, implementing a substantial half-percentage-point cut to prevent further deterioration in the labor market of the world’s largest economy.

A separate survey reveals that a majority of over 100 economists expect the Fed to reduce its key policy rate by 25 basis points in both November and December. Although this aligns with the Fed’s own projections and comments from Chair Jerome Powell about a cautious approach to rate cuts, it falls short of the nearly 72 basis points of easing that interest rate futures are currently pricing in.

Despite these anticipated cuts, the dollar is projected to remain resilient, with the euro, currently valued at approximately $1.11, expected to maintain this level by year-end and through March, according to the median forecasts of nearly 80 strategists. The euro is then predicted to strengthen by about 2% to $1.13 within a year, supporting the view of dollar weakness held by analysts throughout much of this year.

Meera Chandan, an FX strategist at JP Morgan, commented, “While we believe a global soft landing combined with Fed easing should eventually lead to broad dollar weakness, the pathway to that outcome in the near term may be difficult.”

The analysts surveyed were divided on the dollar’s trajectory for the remainder of the year. Just over half, 35 out of 62, indicated a likelihood of a weaker dollar, while the rest anticipated a stronger performance.

Alex Cohen, an FX strategist at Bank of America, noted that “the Fed appears focused on risk management, aiming for a soft landing. While employment data is slowing, it is not experiencing a drastic decline.” He emphasized that the expected rate cuts align with a softer dollar.

Conversely, some analysts pointed to safe-haven demand stemming from escalating geopolitical risks as a potential upward driver for the dollar in the near term. The outcome of the upcoming U.S. presidential election and a likely rate cut from the European Central Bank were also seen as potential positive developments for the dollar.

Dan Tobon, head of G10 FX strategy at Citi, stated, “The dollar may strengthen further, particularly as the U.S. election approaches, as we believe the market is not fully accounting for the possible implications of potential tariffs.” He added that there may also be room for the market to factor in a more dovish stance from the European Central Bank, suggesting a bearish outlook for the euro rather than a broad strengthening of the dollar.

The Japanese yen has seen considerable appreciation since July, rising over 11%, and is expected to outperform other major currencies, climbing more than 6% to approximately 136/$ within a year.