Dollar’s blistering rally to extend into next year: FX analysts in Reuters poll

BENGALURU, Oct 6 (Reuters) – The unstoppable dollar, already having a stellar year, is likely to extend its dominance beyond 2022, according to a Reuters poll of FX strategists who said the currency is still far from a turning point.

The dollar index is up over 16% so far in 2022, with the currency showing little sign of slowing down anytime soon.

Underpinning the dollar’s rise was the superior performance of the US economy, the Federal Reserve’s 300 basis point rate hike this year – with further expectations – and the role it plays as a safe-haven currency.

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With these broad narratives supporting the dollar well into next year, the greenback should be well bid in the short to medium term.

An overwhelming majority of 85% of analysts, 47 out of 55, in the period September 30th to October 10th. 5 Reuters polls, which answered an additional question, said the dollar’s overall strength against a basket of currencies has not yet reached an inflection point.

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When asked when it would be reached, 25 out of 46 respondents said within six months and 17 within three months. Of the remaining four analysts, three said within a year and one said over a year.

Reuters Poll Currency Market Outlook

“It’s definitely too early to tell the dollar’s turning points… in the near term we see even more upside for the dollar,” said Simon Harvey, head of FX analysis at Monex Europe.

“We don’t necessarily see a major turning point for the greenback until at least the second quarter of next year when we think US fundamentals may turn against the Fed’s hawkish policy.”

The dollar’s extended rally is bad news for most major currencies, which have not only racked up heavy losses this year but have also surprisingly underperformed their emerging market peers.

Almost all major currencies — eight among the G10 — that fell by double digits for the year are unlikely to recoup their year-to-date losses over the next 12 months, the survey showed.

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The euro, which has fallen 12% against the dollar for the year and has traded below par for much of August, was expected to remain there for at least six months.

This is the first time in over two decades that median forecasts in Reuters polls have predicted the common currency to trade below par for a six-month period.

It was then expected to gain about 4% and hit $1.03 in a year from $0.991 it was trading around on Wednesday.

The Japanese yen, which recently hit a 24-year low of 146/dollar, was expected to recoup some of its losses within a year.

The safe-haven currency has been forecast to rise in value over the next three, six, and three months, respectively.

If realized, it would mean only about a 7% gain against the dollar over 12 months for a currency that’s already down more than 20% on the year and is the worst-performing major among the majors.

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Much of the weakness came as the Bank of Japan maintained ultra-loose monetary policy while almost all other central banks moved in the opposite direction.

“The Bank of Japan is still not signaling a change in ultra-loose monetary policy. The introduction of less dovish monetary policy would likely have a larger and more lasting impact on the yen exchange rate,” noted Jimmy Jean, vice president, chief economist and strategist at Desjardins.

Trading around $1.12 on Wednesday, the latest survey showed sterling would fall to $1.09 in a month and $1.10 in six months. It was forecast to be about 3.6% stronger at $1.16 in a year.

(For other stories from the October Reuters foreign exchange survey 🙂

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Reporting by Hari Kishan; Additional reporting and analysis by Indradip Ghosh; Survey by Prerana Bhat, Vijayalakshmi Srinivasan and Maneesh Kumar; Editing by Andrea Ricci

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