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 That forecast comes even though the U.S. Federal Reserve is expected
to follow its first interest rate increase in nearly a decade last
month with more this year, and as China's authorities are fixing the
yuan lower on a daily basis.
The latest Reuters poll of over 60 foreign exchange strategists,
taken this week, predicted the euro <EUR=> would trade around the
current $1.07 in a month, weaken to $1.05 in three months and then
weaken a bit further to $1.03 in a year.
Even the number of analysts expecting a much weaker euro has
declined compared with previous months. Some abandoned those
forecasts after the latest European Central Bank meeting, which
disappointed markets by holding monthly bond purchases at the
current 60 billion euros and suggesting they won't be increased.
"We think he (ECB President Mario Draghi) is reaching the limits –
both in terms of technical constraints on the pool of assets to buy
and the Bundesbank's willingness to support further aggressive
easing," wrote Karen Ward, an economist at HSBC.
"Defending a weak euro may prove difficult in 2016 if the Fed's
tightening cycle ends up being shorter or more gradual than the
market predicts."
Dollar demand has also diminished recently on uncertainty about how
often the U.S. will raise rates this year, despite assurances by
several Fed officials in recent days they are comfortable with
several.
Minutes of the latest Fed policy meeting suggested that some
officials were still concerned that inflation would get stuck at
dangerously low levels.
CHINA TO BECOME A BIGGER INFLUENCE
Much will depend this year on broader risks to the global economy,
and in particular what China's authorities do to prop up its slowing
economy.
"If Fed tightening is the driver, USD gains are seen as likely to be
slow and broad-based, spread fairly evenly between G4 majors,
commodity FX and EM FX," wrote strategists at Deutsche Bank in a
note.
"If on the other hand, China, particularly China FX policy, becomes
a source of instability, USD gains will be heavily concentrated in
commodity and EM FX, while the G4 majors all outperform."
The People's Bank of China on Thursday set the yuan midpoint lower
for the eighth day in a row, making the latest fall between daily
fixings the biggest since a 2 percent devaluation in August that
triggered tremors in financial markets.
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Markets fled to safe havens like the Japanese yen on fears that
Beijing, in a bid to help exporters, is allowing the yuan's rapid
depreciation to accelerate. That would suggest China's economy is
even weaker than many currently believe.
The dollar index, which rose over 9 percent last year, is predicted
to end 2016 at 102.0, a little over 3 percent higher than its 98.7
on Thursday.
Currency speculators reduced bullish bets on the dollar in the
latest week, according to data from the Commodity Futures Trading
Commission released on Monday.
The U.S. currency fell to a 4 1/2-month low of 117.66 yen on
Thursday and is down over 2 percent so far this year. Positioning
data also showed yen short positions declined to their lowest since
October.
Still, the yen is forecast to trade around the current level of 121
to the dollar in one month and weaken to 125 in a year.
Sterling is forecast to rise slightly against the dollar to $1.50 in
a year from the current $1.46 on Thursday.
A majority - 28 of 42 analysts who answered an extra question - said
the biggest risk to their forecasts was the lingering uncertainty
surrounding Britain's membership in the European Union ahead of a
referendum expected later this year.
(Additional reporting by Hari Kishan; Polling and analysis by
Siddharth Iyer, Kailash Bathija and Shrutee Sarkar; Editing by Ross
Finley and Larry King)
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