By Sarupya Ganguly
Recent U.S. dollar weakness is expected to come to a halt in the next three months, according to a majority of foreign exchange strategists surveyed by Multibagger. Despite market expectations for Federal Reserve interest rate cuts, the greenback is forecasted to stabilize after losing almost all its midyear gains.
The surge in the dollar earlier this year was erased as interest rate futures started pricing in significant Fed easing, with expectations nearly doubling since June. This shift was driven by signs of a slowdown in the labor market, as well as comments from Fed chair Jerome Powell hinting at rate cuts.
Market volatility is expected in the coming weeks, with the upcoming payrolls data likely influencing the Fed's decision on the size of the rate cut. Economists anticipate job additions in August to rebound, potentially affecting the direction of the dollar.
Despite predictions of a slight decline in the euro's value in the short term, analysts believe the dollar's current weakness may be temporary. Speculators have turned net short on the greenback for the first time in months, with market sentiment divided on the currency's future trajectory.
While some expect further weakening of the dollar, others argue that the U.S. economy's momentum could support the currency's stability. The outlook for the Japanese yen, on the other hand, points to significant gains as carry trades unwind and the Bank of Japan implements rate hikes.
Analysis:
The recent weakness in the U.S. dollar, driven by expectations of Fed rate cuts, has led to volatility in the foreign exchange market. While some strategists believe the dollar's decline may continue, others suggest that the U.S. economy's strength could support the currency's stability. Investors should closely monitor upcoming economic data and Fed decisions to gauge the dollar's future direction and its impact on their portfolios.