According to a Reuters poll of forex strategists, the U.S. dollar will remain dominant for now as the Federal Reserve stays a hawkish course on interest rate hikes and its intentions to unload some of its pandemic-related bond purchases.
The dollar index, which had gained nearly 7% against major currencies last year, continued its stellar performance and has gained another 4% this year, with half of its gains in March alone.
Many Federal Reserve officials who have spoken openly about force reducing the size of its nearly $9 trillion balance sheet have said that it's strength was driven by comments made by Federal Reserve officials who said that in addition to calling for 50 basis point rate rises.
The strong dollar trade that is not expected to fade soon is a result of the U.S. Treasury yields to multi-year highs and investors into dollar-denominated assets, which is a key part of the strong dollar trade that is not expected to fade soon, keeping the currency well-bid.
According to the U.S. Commodity Futures Trading Commission, the market speculators' net long bets on the dollar rose to an 11 week high in the last week.
More than two-thirds of analysts who answered a separate question, 37 of 53, said the strong dollar trade would last for at least another three months, including 17 who said more than six months.
Thirteen respondents said the trade is already over and three of the remaining three said the trade is already over.
The Fed has been tightening this year, and we've got some aggressive tightening coming up this year. Chris Turner, Global Head of Markets Research at ING, said the fed funds rate will probably hit 3% in the first quarter of next year, but they could be cutting rates by the end of 2023.
I think the dollar could hold onto its gains for a lot of 2022, and we shouldn't be looking for weakening in the dollar until maybe next spring-summer 2023. Graphic: Reuters Foreign Exchange Poll - April 2022 - https: fingfx.thomsonreuters. com gfx polling znpneqmwxvl Reuters 20 foreign 20 exchange 20 poll 20 -- 20 April 202022. png That view matches with the median forecasts in the April 4 -- 6 poll of over 80 forex strategists who expected the dollar to eventually cede some of its gains to other currencies.
There are plenty of reasons for a delay, including the Russia-Ukraine war, which has sent the cost of energy and commodities spiralling higher, with Europe feeling the pinch.
The ECB has exceeded our expectations and Europe's fiscal response to offset the near-term growth impact, because further Fed repricing is less beneficial to the dollar. The euro was expected to erase its past 4% losses for the year and rise to $1.14 in 12 months, a view analysts have held onto for more than two years. The common currency has not gained a lot against the dollar for three months in a row since September 2020.