U.S. dollar outlook stays weak despite rally, Reuters poll shows

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U.S. dollar weak outlook

Highlights

A Reuters poll of nearly 70 FX forecasters shows the euro projected at $1.16 in a year, implying continued bearish sentiment on the dollar despite its recent strength.
Eighty percent of forecasters now see higher near-term upside risk for the dollar, reflecting rising U.S. Treasury yields approaching 25-year highs and expectations of further Fed tightening.
Persistent inflation above the Fed's 2% target, $100 oil, and strong U.S. capital inflows suggest support for the dollar until Fed rate hikes slow economic growth from its 2.2% second-quarter pace.

Poll forecasts point to softer dollar over 12 months

As reported by Reuters, a September 30 to October 2 poll of nearly 70 FX forecasters shows only minor changes to long-held bearish dollar views despite the greenback's recent surge. Median forecasts put the euro at $1.14 in one month, $1.15 in three and six months, and $1.16 in a year, implying that much of the dollar's latest advance fades over time.

At the same time, forecasters acknowledge stronger near-term upside risk for the U.S. currency. An 80% majority says the dollar is more likely to outperform their three-month forecasts than undershoot them, suggesting recent market moves are forcing some reassessment even as the broader consensus remains negative.

Jayati Bharadwaj, head of FX strategy at TD Securities, says the dollar can stay somewhat stronger in the very near term but that the market remains in a bearish-dollar regime over a six-month to one-year horizon. TD, like several others in the survey, expects the Federal Reserve to raise rates by less than markets currently price in.

Rates, war and growth keep supporting the greenback

The dollar has been supported by a September Federal Reserve rate hike and by expectations that borrowing costs may rise further. Treasury markets also come under heavy pressure, with the 10-year and 30-year yields climbing to near 25-year highs this week after the worst quarterly sell-off since 1994.

Inflation remains above the Fed's 2% target for more than five years, while oil staying above $100 a barrel adds to price pressures as the U.S.-Israeli war on Iran enters its eighth month with no sign of ending. Kenneth Broux, head of corporate research for FX and rates at Societe Generale, expects the dollar to weaken only once higher rates begin to slow the U.S. economy, which grows at a 2.2% annualised rate in the second quarter.

Some strategists continue to argue that the consensus still underestimates the dollar's staying power. Paul Mackel, global head of FX research at HSBC, expects the currency to extend gains as long as markets believe the Fed will keep raising rates, while UBS's Shahab Jalinoos says persistent capital inflows, strong equity markets and foreign demand for U.S. assets create support that valuation and trade-based models can miss.

In our earlier article on the dollar’s rally, we explained how a global bond sell-off and a spike in U.S. 10-year Treasury yields helped lift the greenback while pushing the euro toward its weakest levels since May 2025. We also noted that markets were fixated on the upcoming U.S. jobs report for clues on the Fed’s next steps, while higher oil prices and renewed concerns about Europe’s fiscal outlook added to demand for the dollar as a safe haven.

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