US dollar to extend rally in 2017: Poll
The US dollar will keep strengthening against the euro with even chances of reaching parity this year, a Reuters poll showed yesterday, on expectations that President-elect Donald Trump’s planned tax cuts will force interest rates higher.
It was also expected to strengthen against Britain’s pound and to stay buoyant against a basket of major currencies. The findings suggest a good amount of optimism still prevails among currency strategists about the impact Trump’s policies will have on growth, inflation and interest rates, especially considering the dollar has rallied almost 4 percent to a near 14-year peak last year.
In the months before the Nov 8 US presidential election, most foreign exchange analysts polled by Reuters said the dollar would decline 2 to 3 percent immediately after a Trump victory, a view they have abandoned altogether.
A little under two-thirds of analysts who answered an extra question in the poll said their forecasts for the dollar were more likely to be low than high. Several of those responses came after minutes from the Federal Reserve’s December meeting revealed policymakers had begun factoring in the likelihood of greater fiscal stimulus into their forecasts, suggesting rates could rise faster than the three moves currently predicted by them.
“The Fed’s thinking seems to have shifted already with its dots moving higher in December, compared to last year when they mostly moved lower, and that signals a period of dollar strength,” said Eric Viloria, FX strategist at Wells Fargo, the top forecaster for major currencies in Reuters polls in 2016.
“Dots” refers to a scatter chart of where Fed members see rates a year ahead. But Viloria cautioned the dollar is well into its typical long-term cycle: “So I think there could be some further rise this year but a turning point after that cannot be ruled out either.” The latest poll of 60 strategists taken this week forecasts the dollar index, which measures the currency against a basket of six major currencies,, at 101.5 by end-2017. That is roughly where it is now, but only after surging over 40 percent since mid-2011. Expectations of further gains have dented the outlook for almost every other currency around the world from Asia to Europe to Latin America, Reuters poll data shows.