Weaker dollar views stick into US midterms, but strategists brace for resilience
SPY•FX strategists expect the dollar to weaken in coming months, with the euro forecast at $1.13 in three months, $1.14 in six months and $1.16 in a year. But 17 of 30 respondents said the dollar was more likely to exceed than miss their three-month forecasts.
1. Dollar outlook holds
A Reuters poll conducted October 30-November 3 found that FX strategists had barely changed their bearish dollar outlook from early October, despite expecting the currency could prove more resilient than forecast. Median estimates from 66 forecasters put the euro, then around $1.12, at $1.13 in three months, $1.14 in six months and around $1.16 in a year.
2. Risks to forecasts
Bank of America strategist Alex Cohen cited strong US growth and stubborn inflation as reasons the dollar could stay supported. While strategists have underestimated the dollar’s strength for much of the year, 17 of 30 respondents to an additional question said it was more likely to top their three-month forecasts than fall short.
3. Election and conflict risks
Cohen said a strong Democratic showing in the midterms should be priced in, while a surprise Republican sweep could lift equities, rates and the dollar. Strategists also cited the ongoing US-Israeli war with Iran, which has kept oil above $105 a barrel and risks adding to inflation pressure.
