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 In the short term, the dollar should remain in favor, since the
European Central Bank is expected to expand its already massive bond
purchase program on Thursday and to cut its negative deposit rate
even further.
At he same time, expectations are almost equally rock-solid that the
Federal Reserve will do the opposite in just two weeks - raise U.S.
interest rates from zero for the first time in nearly a decade.
The trouble is both policy decisions have been so heavily flagged in
advance by central bankers - particularly at the ECB - that any
effect they might have on the currencies is already mostly priced
in.
And it is not certain what the Fed will do. Data on Tuesday showed
U.S. manufacturing contracted in November for the first time in
three years, buckling under the weight of a strong dollar and
slowing global trade.
That dragged down U.S. Treasury yields to their lowest in a month on
concern the economy, which is still generating little inflation, may
not be running as hot as many are hoping.
"The next - and broad-based - leg of the dollar rally will be seen
when and if U.S. yields start an uptrend," wrote Kit Juckes, global
head of FX strategy at Societe Generale.
"That requires the U.S. economy to shrug off the start of the
tightening cycle, and the market then to become more comfortable
with the prospect of a longer-lasting uptrend in U.S. rates."
The dollar <.DXY> gained over 3 percent last month against a basket
of currencies on expectations that the Fed is gearing up for a rate
hike on Dec. 16. The euro fell 4 percent last month and is down over
13 percent against the dollar so far this year.
But the poll of more than 60 currency strategists conducted this
week showed the euro <EUR=> easing only slightly to $1.05 in a month
and to $1.04 in a year. On Wednesday, it was trading around $1.06.
That suggests the monetary policy divergence that is supposed to
occur this month has been largely priced in.
The dollar sentiment could also be tempered by various Fed members
reminding investors to be mindful of the timing of future increases,
which would be gradual.
Still, 40 of 60 analysts said the risks to their dollar forecasts
were skewed to the upside. The remaining 20 said to the downside.
The dollar index is forecast to rise to 100.2 by year end and to
102.3 at end-2016 from 100.1 currently.
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Strategists expect the dollar to gain against emerging market
currencies, too.
Currency speculators cut their bets in favor of the dollar slightly,
according to the latest data from the Commodities Futures Trading
Commission, while bets against the euro have just eased off their
highest since August.
Although a few more analysts are forecasting euro/dollar eight - the
majority view is that the euro has already tested its floor and does
not have far to go below the lows hit this year.
"As we consider this the beginning of the end of the USD
super-cycle, we expect some of the 'early movers' in FX to slow down
and even reverse in some cases," wrote Ian Stannard, head of
European FX strategy at Morgan Stanley.
"For the euro, our forecast profile is modest and for front-loaded
weakness, representing a petering out of the effects of ECB easing
as growth improves in Europe."
The yen is forecast to trade around the current level of 123 to the
dollar in one month but weaken to 125 in a year.
Sterling, however, will remain stable over the next year, trading
between $1.51-1.53.
The Bank of England is expected to follow the Fed and raise interest
rates from a record low next year, but not until at least April.
Against the euro, sterling will gain ground in the year ahead. The
poll showed you will need 70.0 pence to buy one euro in a month,
68.8p in six months and in a year.
(For other stories from the global FX poll)
(Additional reporting and analysis by Hari Kishan; Polling by
Sarmista Sen and Khushboo Mittal; Editing by Ross Finley, Larry
King)
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