USD to Hold Steady Against Major Currencies in Q3 2023, Survey Says

The US dollar- USD will maintain its position relative to the majority of other currencies over the next three months, according to FX strategists surveyed by a reputable news organization- Reuters. It says because it is expected that interest rates will stay higher for longer due to the strength of the domestic economy.

The dollar has increased by almost 3% (DXY) despite net short dollar positions reaching their highest level since March 2021. On July 14, the dollar hit its lowest point in more than a year due to waning expectations for Federal Reserve interest rate reduction.

Despite the excellent prior performance of the euro, which coincided with the dollar’s recent resurgence, the euro is still up about 2.4% against the dollar for the year due to more certain expectations that the European Central Bank will stop raising interest rates.

According to the July 31–August 2 News poll of 70 FX strategists, which revealed that most major currencies would not reclaim their recent highs for at least six months, the dollar is unlikely to give up recent gains in the coming months.

In response to a different inquiry, 27 out of 40 FX strategists predicted that net short USD positions would either remain stable or decrease over the ensuing month, indicating that the dollar would be rangebound.

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The Fed announced what might have been the final rate hike of the current cycle. The labor market is rebalancing and inflation is declining. According to the report, these circumstances frequently coincide with a more pessimistic outlook for the dollar, according to Kamakshya Trivedi, head of global FX at Goldman Sachs.

We still believe that is the right course of action, but we believe that dollar depreciation will be shallow, uneven, and differentiated. Dollar assets will continue to set a high standard for a while to come, according to News’ report.

The euro’s recent uptrend has most likely come to an end, and based on the idea that the ECB has stopped, it will likely trade around $1.10 in three months.

Do we still need to cover more ground? After announcing a much-anticipated 25 basis point (bps) rate increase last week, ECB President Christine Lagarde said, “At this point, I wouldn’t say so,” according to a News report.

Short-term rate differentials are moving against the euro as we enter August, and long EUR futures positions appear to be at risk. According to a News report, Kit Juckes, chief FX strategist at Societe Generale, warned that unless something changes to increase confidence in another 25 bps ECB hike, the positioning will drive down the EUR/USD.

Unless, of course, this week’s US data are particularly poor, in which case the topic will return to when the Fed will begin easing. Data is therefore important, but if all the data is uninteresting, the euro has a problem this month, according to News’ report.