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The greenback is expected to maintain its
position of strength this year as investors continue to flock
into dollar-denominated assets, which are currently
outperforming, as trade uncertainty tends to favors them.
The dollar index <.DXY> has held its ground and is up over 2%
this year, despite one Fed rate cut and expectations for more.
(World FX rates this year:
http://fingfx.thomsonreuters.com
/gfx/rngs/GLOBAL-CURRENCIES-PERFORMANCE/0100301V041/
index.html )
But narrowing interest rate differentials, along with the view
that the dollar's strength may be overdone, had the Aug.
29-Sept.4 poll of 80 foreign exchange strategists showing most
major currencies will have clawed their way back and gained
against the dollar a year from now.
Still, nearly two-thirds of 48 analysts who answered a separate
question said the risks to their dollar outlook was skewed more
to the upside, suggesting the greenback is still the most
preferred currency.
"The recent escalation in the trade war between the U.S. and
China is a dollar positive story. We are relatively pessimistic
and feel we are unlikely to get a trade deal before the end of
this year, which should keep the dollar well bid," said Lee
Hardman, currency analyst at MUFG in London.
"Unless we see a more aggressive Fed rate cut cycle in response
to recession fears in the U.S., it is difficult to see in the
near-term what will trigger a sustainable reversal of the strong
dollar trend that has been in place for the last couple of
years."
While a slim majority - 28 of 50 analysts - said G10 currency
moves would mostly be driven by what happens in the year-long
U.S.-China trade war, over a third expected U.S. dollar moves
based on actions from the Fed would dominate FX trades for the
remainder of the year.
Currency speculators cut their bets in favor of the dollar in
the latest week to the lowest level since June 2018 but were
still net long on the dollar, according to data from the U.S.
Commodity Futures Trading Commission.
"The favoritism toward U.S. assets is huge. Treasuries are still
fairly high yielding relative to sovereign debt of other
countries. Yes, it (dollar) might be an overcrowded trade but it
is an overcrowded trade for a reason," said James Orlando,
senior economist at TD Economics in Toronto.
"The U.S. economy seems like it's doing fairly well, a
fundamental reason to why people are in the U.S. dollar and U.S.
dollar assets."
The dollar slipped and risky currencies flourished on Thursday
amid optimism the United States and China would find a solution
to their trade feud. Easing tensions in Hong Kong and ebbing
fears of a no-deal Brexit provided relief to investors worried
about global growth.
Only five respondents chose monetary policy or economic
developments outside of the U.S. as the biggest influencer of
currency moves this year.
Still, analysts are expecting the dollar to give up some of its
gains against most major currencies over the next 12 months.
That was despite other economies weakening faster than the
United States and major central banks also predicted to ease
monetary policy further.
It is view they have wrongly held since early last year, and was
at least partly based on the idea that the dollar may have risen
too far .
The euro was forecast to gain around 4% on the dollar to trade
at $1.15 in a year from near $1.11 on Thursday despite the
European Central Bank expected to announce a slew of stimulus
measures next week.
While the consensus in the latest poll was similar to the August
poll, analysts largely trimmed their forecasts and even if the
12-month ahead euro predictions are realised, it would still be
short of the around 8% loss it has suffered since the start of
2018.
For this year, the euro was forecast to underperform the dollar,
making it the seventh yearly loss for the single currency in the
past decade.
(Polling by Khushboo Mittal, Tushar Goenka and Md Manzer Hussain;
Editing by Jonathan Cable and Andrea Ricci)
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