Breaking News
Get Actionable Insights with InvestingPro+: Start 7 Day FREE Trial Register here
Investing Pro 0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Dollar has the interest rate edge to rule for now: Reuters poll

EconomyDec 03, 2021 00:30
Saved. See Saved Items.
This article has already been saved in your Saved Items
 
© Reuters. FILE PHOTO: An employee of the Korea Exchange Bank counts one hundred U.S. dollar notes during a photo opportunity at the bank's headquarters in Seoul April 28, 2010. REUTERS/Jo Yong-Hak

By Hari Kishan

BENGALURU (Reuters) - Interest rate differentials will dominate sentiment in forex markets over the next three months, a Reuters poll of FX analysts found, placing the U.S. dollar in a unique position to extend its outperformance against its peers.

The dollar index, up nearly 7% for the year and on its best run since 2015, received further impetus from Federal Reserve Chair Jerome Powell on Wednesday, who gave markets fodder to speculate the central bank would raise rates earlier than expected.

With that policy impetus in its sails, the dollar is likely to find new converts in coming weeks from among those analysts who still expect it to weaken in the short- to medium-term.

"The dollar is well placed to repeat what it tends to do," said Paul Meggyesi, head of FX research at JP Morgan in London.

"Typically, on average, the dollar has gone up by four percentage points in broad index terms in the six months before the first Fed hike, and that's probably not an unreasonable projection for thinking about how much upside there could be for the dollar this time around."

Reuters poll graphic on major currency market outlook: https://fingfx.thomsonreuters.com/gfx/polling/zgvomnmxlvd/Major%20FX%20poll.png

But there was considerable uncertainty in financial markets over the new Omicron coronavirus variant that has pushed measures of volatility to levels not seen since the beginning of the year.

That split analysts polled Nov. 29-Dec. 2 on an additional question asking what would drive FX markets in the coming three months.

The most common reply, from 19 of 46 respondents, was interest rate differentials, the second most common pick was 15 for new coronavirus variants.

While nine chose safe-haven buying, two said search for higher yield, only one analyst picked commodity prices.

Even beyond that period analysts do not expect most major currencies to claw back the significant losses they have suffered against the dollar within 12 months.

The euro was forecast to gain about 1.5% and the safe-haven Japanese yen to drop another 2% in a year. They were down around 7% and 9% this year respectively. At the beginning of 2021, analysts had forecast both currencies to be about 10% higher from current levels around now.

However, some analysts held to the view the dollar would eventually weaken as underlying factors supporting the greenback's strength were unsustainable in the long run.

"If what you're looking at is inflation, you have to keep at the back of your mind that you're sort of looking at the near term, it can be a year, year and a half but ultimately there's a point at which they've done enough and then you hit a period of dollar weakness," said Steve Englander, head of G10 FX strategy at Standard Chartered (LON:STAN).

"I'd say this is not a high quality dollar rally. It's not like the late 90s when you saw productivity booming. This is sort of the 70s rally which we know comes and goes."

Dollar has the interest rate edge to rule for now: Reuters poll
 

Related Articles

Top 5 Things to Watch in Markets in The Week Ahead
Top 5 Things to Watch in Markets in The Week Ahead By Investing.com - Jan 23, 2022

By Noreen Burke Investing.com -- It’s set to be a major week for markets, between the Federal Reserve meeting and an avalanche of big-name earnings. Fed Chair Jerome Powell is...

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email