Dollar Strength Fades: FX Strategists Predict Reversal by Next Year

The US dollar has rallied by over 3% since early September, but FX strategists polled by Reuters are still bearish on its long-term prospects. The median view from nearly 70 forecasters puts the euro at $1.14 in a month and $1.16 in a year, suggesting the dollar will give up most of its recent gains over the coming year.

The greenback has been boosted by a September Federal Reserve interest-rate hike, with rate futures markets pricing nearly four more hikes. However, FX strategists have underestimated the dollar's strength in their three-month forecasts for nine straight months.

Some forecasters, such as Jayati Bharadwaj, head of FX strategy at TD Securities, expect the Fed to hike less than markets are pricing, which could slow down the US economy. Kenneth Broux, head of corporate research for FX and rates at Societe Generale, sees the dollar sliding once higher rates slow the US economy.

Paul Mackel, global head of FX research at HSBC, is one of the few forecasters to call the stronger dollar correctly this year. He expects strength at least through the first half of 2027, as long as markets expect the Fed to keep raising rates.