Published by Sarupya Ganguly
BENGALURU (Reuters) – The U.S. dollar tightens its grip on global currency markets with little standing in its way, and a large number of foreign exchange forecasters polled by Reuters expected to rise to parity with the euro in 2025.
The greenback rose more than 7% against a basket of major currencies last year, falling just shy of an 8% gain in 2022 – a seven-year high – and driving the euro to a level dollar and a low of more than two years. from $1.02 on January 2.
While forecasters in Reuters polls – long supporters of a weaker dollar – were mostly off the mark in their midpoint forecasts throughout last year, Additional questions, particularly about risks to those estimates, captured the currency's relentless ascent.
Much of that was due to a nearly 8% rise in the dollar in the last quarter of 2024, fueled by the sustained, and often unexpected, economic stability of the US.
A signal by the US Federal Reserve in December that it was in no rush to cut interest rates further, along with fears of inflation rooted in President-elect Donald Trump's tax and tax policies, did not help. , to reinforce these benefits.
“Maybe we feel like a broken record, but our view for the coming months is that the dollar will remain strong. In some ways, there is a taste of 'there is no other choice,'” said Paul Mackel, global head of FX at HSBC.
Interest rate futures are now fully pricing in just one more Fed rate cut by the end of 2025 and are hovering over the possibility of a second, compared to speculation that the European Central Bank will cut rates by nearly 100 basis points by that time
That, along with the pull of higher long-term U.S. Treasury yields and expectations of more rate cuts from other major central banks, is likely to limit the dollar's decline, foreign exchange strategists said. in a January 3-8 Reuters survey, showing subtle signs of a shift in stance.
The euro, currently at $1.03, was seen rising a little 1% to $1.04 over the next three to six months and then to $1.05 by the end of the year, according to the average opinion of more than 70 strategists, significantly lower than expected a few months ago.
The latest position data from the Commodity Futures Trading Commission also showed that speculators had increased their long dollar bets to the highest level since May.
“When you look at other currencies – their fundamentals, yields and other sources of uncertainty around them – you still come back to the dollar. We may get windows where the market is happy to look for alternatives, but that is temporary and this year will be another example of that,” said HSBC's Mackel.
When asked if the euro would reach parity against the dollar this year, a majority of nearly two-thirds, 24 of 38 respondents to an additional question, said it would.
Of these, the majority said they would do so in the first half of this year.
“We maintain a target of $1 for the euro for Q2, although we recognize the risk of this target being met earlier…. force,” noted Jane Foley, senior FX strategist at Rabobank, the most accurate forecast for euro-dollar in Reuters polls in 2024 according to LSEG StarMine calculations.
But only a fraction of banks surveyed, around one-fifth, predicted that the euro would equal or slip below the dollar in the next three, six or 12 months in the pre- their time points.
(For other stories from the January Reuters foreign exchange poll 🙂
