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Dollar still a force to reckon with, at least for this year: Reuters vote

BENGALURU (Reuters) – The US dollar, which has dominated foreign exchange markets since the beginning of 2018, will continue to be a force to count on at least the rest of this year, according to a majority of currency traders in a Reuters -opinion poll .

FILE PHOTO: A pack of US dollar bills has been inspected at the Bureau of Engraving and Printing in Washington on 26 March 2015. REUTERS / Gary Cameron // File Photo

Despite being erroneous for years, strategists are still stuck with their view of a weaker dollar a year.

But analysts since the beginning of the year have repeatedly trimmed how much other major currencies will gain in 12 months, reflecting the weakness of non-US economies. They now see the euro climbing 3.5% and Japan's yen about 2% against the dollar in the coming year.

The US economy also shows signs of a slowdown, hampered by the ongoing trade war with China, and now tightens the expectations of the Federal Reserve's political easing in the coming months.

Still, S & P 500 has repeatedly hit record highs, and government bond yields have fallen to perennial downturns, reflecting the increased interest in dollar-denominated assets that should complement the currency.

"Where we differ from the rather negative consensus view, although the Fed delivers these interest rate cuts, it still leaves the dollar as one of the highest G10 currencies and what we believe consensus is missing. is the direct role of dividend, "said Adam Cole, director of FX strategy at RBC.

"The fact is that US rates will fall. But what is it that supports the dollar – and has done most of this year – is that even with these interest rate cuts, yields are still high and that is a kind of environment that carries (trade) issues. "

While consensus in July 1-4 voting on over 80 analysts suggests a weaker dollar view, three-quarters of respondents to a further question said that greenback dominance is not yet over, and they expect it to last at least for the rest of this year.

It includes over 50% of strategists predicting the dollar's reign to continue for more than a year.

But the currency will probably not maintain the same momentum. Robust economic performance driving the greenback to dizzying heights has begun to fade.

This is reflected in recent positioning data, which showed that currency speculators lowered their bets for the dollar to the lowest since January, according to the US Commodity Futures Trading Commission.

"The dollar rolls over a bit because markets are pricing in more aggressive interest rate cuts," says Gavin Friend, senior market strategist at NAB.

"But if these interest rate cuts are to be delivered, it is because there has been no solution to the global trade situation and it will not benefit European growth."

The worsening of trade tensions euro area growth and inflation prospects have both taken a turn.

To combat it, European Central Bank President Mario Draghi has called for "further stimulus", which many economists predict, either in the form of a deeper negative deposit rate or by adjusting the central bank's forward-looking guidance.

The euro EUR = is expected to be 3.5% to $ 1.17 in one year from approx. $ 1.13 on Thursday, corresponding to last month's vote, which was the lowest forecast for nearly two years.

But the risk of the already subdued euro views is more skewed to the disadvantage, a majority of strategists said in response to a separate question.

"With each subsequent year and more information we get on how the economy responds – how high can the euro continue to be ratcheted down every time," said James Orlando, senior economist at TD Securities.

"Yes, there is a likelihood that the euro can appreciate. But it is consistently smaller and smaller than it was the previous year."

But despite relief measures that are widely expected from both the ECB and the Bank of Japan, it does not all agree that it would weaken the currencies concerned.

Yen JPY =, which is above 1.5% this year, is expected to rise by 2% a year to trade about 106 yen for the dollar. It was about 107.8 on Thursday.

"Regardless of the fact that the ECB shrinks around what they can do with monetary policy – just as the Japanese have done with theirs – the ECB will not be able to fight the euro / dollar moving to $ 1, 20 longer than the Bank of Japan can prevent the dollar / yen from going down to 100, "said Kit Juckes, chief global global strategist for Societe Generale.

"Nothing that the ECB does will be as important as what the Fed would do. Nothing that the ECB does will be as important as how much pressure – possibly – US President Donald Trump puts on (Fed) to get a weaker dollar. "

Polling Indradip Ghosh and Vivek Mishra; Editing Ross Finley and Hugh Lawson

Our Standards: Thomson Reuters Trust Principles.

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