Dollar Rally Set to Fizzle Out, Say FX Strategists

Despite a recent rally of over 3 percent, FX strategists polled by Reuters predict that the US dollar's strength will fizzle out in the coming year. In a September 30-October 2 poll, nearly 70 forecasters shared their views on the dollar's performance.

The median view is for the euro to reach $1.14 in a month, up 1 percent, and $1.15 in both three and six months, before reaching $1.16 in a year. Jayati Bharadwaj, head of FX strategy at TD Securities, believes that while the dollar may remain strong in the short term, it will eventually give way to its bearish trend.

The Fed's interest rate hike in September contributed to the dollar's recent gains, but forecasters expect it to slow down as markets price in future hikes. Kenneth Broux, head of corporate research for FX and rates at Societe Generale, expects the dollar to slide once higher rates start to slow the US economy.

Not everyone shares this view. Paul Mackel, global head of FX research at HSBC, believes that the dollar will continue to strengthen as long as markets expect the Fed to keep raising rates. He sees the currency extending its gains through the first half of 2027.