Dollar Expected to Hold Firm Despite Hawkish Fed Remarks

The US dollar is expected to hold firm in the coming months but trade weaker in a year according to a Reuters poll of FX strategists. The survey also found that most forecasters believe the Federal Reserve will not raise interest rates as much as markets are currently pricing in.

This is despite Fed Chair Kevin Warsh's relatively hawkish remarks last week, which some had taken as a sign that the central bank would tighten policy further. However, sparse guidance from the Fed has left forecasters little reason to revise their long-held calls for dollar weakness.

The greenback sold off briefly in August after US Treasury Secretary Scott Bessent surprised markets with news of unscheduled long-dated bond purchases but has since recovered following renewed military conflict between the US and Iran. Interest rate futures are now betting on two Fed rate hikes this year to tame inflation, which is running above the central bank's 2% target.

Currency strategists' forecasts for dollar weakness have barely budged since the previous poll, with medians showing the euro holding its current $1.16-level in three months and $1.17 in six months, but weakening to $1.18 in a year.