US Dollar likely to maintain its position against foreign currencies over next 3 months, says Reuters Survey | Mint
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Business News/ Economy / US Dollar likely to maintain its position against foreign currencies over next 3 months, says Reuters Survey
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US Dollar likely to maintain its position against foreign currencies over next 3 months, says Reuters Survey

US dollar to maintain its position vs. most currencies over next 3 months due to expectations of higher interest rates. Euro's recent run likely to end, trading around $1.10 in 3 months.

Despite net short dollar positions reaching their largest level since March 2021, the dollar has increased by almost 3%; Reuters (REUTERS)Premium
Despite net short dollar positions reaching their largest level since March 2021, the dollar has increased by almost 3%; Reuters (REUTERS)

According to FX strategists surveyed by Reuters, the US dollar will maintain its position versus the majority of foreign currencies over the next three months because of predictions that interest rates would remain higher for longer due to the strength of the domestic economy.

Despite net short dollar positions reaching their largest level since March 2021, the dollar has increased by almost 3% (DXY) after it reached its lowest point in more than a year on July 14 due to waning expectations for Federal Reserve interest rate reduction.

The dollar's recent resurgence coincided with a decline in the euro's excellent previous performance; despite this, the euro is still up around 2.4% against the dollar for the year due to firmer predictions that the European Central Bank will stop raising interest rates.

The dollar is unlikely to give up recent gains in coming months, according to the July 31-Aug. 2 Reuters poll of 70 FX strategists, which showed most major currencies would not reclaim their recent highs for at least six months, said Reuters in its report.

27 out of 40 FX strategists who responded to another query stated that net short USD positions will either not change much or decline over the following month, indicating that the dollar would be rangebound.

"The Fed delivered what very well might have been the last hike of the cycle. Inflation is falling and labour market rebalancing has come a long way. Typically, these conditions often coincide with a more negative dollar outlook," said Kamakshya Trivedi, head of global FX at Goldman Sachs, according to Reuters report.

"We still think that is the right direction, but think dollar depreciation will be shallow, bumpy and differentiated...dollar assets will provide a hard bar to beat for some time to come," stated Reuters in its report.

In the meantime, the euro's recent run has probably come to an end, and based on the notion that the ECB has halted, it will trade around the present level of $1.10 in three months.

"Do we have more ground to cover? At this point in time I wouldn't say so," said ECB President Christine Lagarde last week after delivering a widely anticipated 25 basis points (bps) rate increase, according to to Reuters report.

"The euro comes into August with short-term rate differentials drifting against it and long EUR futures positions looking vulnerable. Something needs to happen to boost confidence in another 25 bps ECB hike, or the positioning will drag EUR/USD down," noted Kit Juckes, chief FX strategist at Societe Generale, as per Reuters report.

"Unless, of course, the US data this week are bad enough to shift the conversation back to when the Fed will start easing. So, data-sensitive, but if all the data is dull, the euro has a problem this month," stated Reuters in its report.

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Published: 03 Aug 2023, 12:37 PM IST
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