Dollar Surge May Be Short-Lived as Forecasters Predict Long-Term Weakness

The US dollar's recent surge may be short-lived, according to FX strategists polled by Reuters. Despite a rally of more than 3% since early September, nearly 70 forecasters predict that the dollar will give up most of its gains over the coming year.

Most respondents (80%) believe the dollar is likelier to beat their three-month forecasts than fall short, suggesting the potency of the dollar's recent rise may be starting to sink in. However, a bearish view on the dollar remains prevalent among forecasters, who have underestimated its strength for nine straight months.

The greenback has been boosted by a September Federal Reserve interest-rate hike and a sell-off in global bond markets. But FX strategists, like Jayati Bharadwaj of TD Securities, expect the Fed to hike less than markets are pricing, which could slow down the dollar's strength.

While some forecasters, such as Paul Mackel of HSBC, believe the dollar will continue to extend gains, others like Shahab Jalinoos of UBS argue that there is an underlying bias against the dollar in the market. This bias may be based on valuation models that show the dollar is expensive.