Dollar Expected to Hold Gains, Weakness Ahead

The US dollar is expected to hold its gains over the next few months but may weaken in a year, according to a Reuters poll of FX strategists.

The Federal Reserve's sparse guidance on interest rates has left forecasters with little reason to revise their long-held calls for the dollar to weaken. The greenback has sold off briefly in August after US Treasury Secretary Scott Bessent surprised markets with news of unscheduled long-dated bond purchases, but it has recovered in recent days following renewed military conflict between the United States and Iran.

Currency strategists' forecasts for dollar weakness have barely budged since the August poll. Medians from the August 31 to September 2 poll showed the euro holding its current $1.16-level in three months, $1.17 in six, and $1.18 in a year.

Experts say that the repricing of Fed rate hikes is crucial for dollar positioning. Vincent Reinhart, former Fed staffer and now chief economist at BNY Investments, said 'the Fed is not going to tighten in the way currently priced into markets'.