U.S. dollar seen weakening after midterms, but strategists warn of resilience

Traders Union
All News
Economic Data
U.S. dollar after midterms

Highlights

Reuters poll of 66 FX forecasters projects the euro rising about 4% versus the dollar to $1.16 in a year, despite recent dollar strength.
Around 60% of surveyed strategists see higher odds of the dollar exceeding three-month forecasts, citing strong U.S. growth and persistent inflation above 2%.
Despite U.S. 10-year Treasury yields dropping nearly 45 basis points since Oct. 7, the dollar remains resilient amid expectations for more Fed rate hikes.

Reuters poll points to cautious dollar outlook

As reported by Reuters, a survey conducted from Oct. 30 to Nov. 3 shows foreign exchange forecasters largely sticking to their bearish dollar view even as recent market moves support the currency. The poll comes before elections that will determine whether President Donald Trump's Republican Party keeps control of Congress.

Median forecasts from 66 respondents put the euro, now near $1.12, at $1.13 in three months, $1.14 in six months and $1.16 in a year, implying a gain of about 4%. Still, roughly 60% of strategists who answered an additional question, 17 out of 30, say the dollar is more likely to exceed their three-month forecasts than undershoot them.

Alex Cohen, FX strategist at Bank of America, says dollar depreciation can resume next year, but risks point to the currency being supported for longer. He cites strong U.S. growth and persistent inflation, which has stayed above the Federal Reserve's 2% target for nearly six years, as key reasons.

Rate expectations and market moves shape risks

The Federal Reserve pauses rate hikes last month after raising borrowing costs in September, while rate futures price in around two more increases starting next month. That policy backdrop helps explain why the dollar remains firm even as Treasury yields fall and concerns over the AI investment boom weigh on equities.

In recent weeks, investors move into U.S. Treasuries and the benchmark 10-year yield drops nearly 45 basis points from Oct. 7 to below 5%. Even so, the greenback holds up better than some strategists expect.

Erik Nelson, global head of FX strategy at Wells Fargo, says the dollar is not responding as it usually does to market catalysts and needs to start moving lower, while he sees the euro at $1.16 by year-end. He also argues that higher interest rates alone may not be enough to cool inflation without a much sharper hit to stocks and consumer spending.

Our earlier article on UBS’s extended Federal Reserve tightening-cycle forecast highlighted how persistent inflation pressures led the bank to pencil in additional rate hikes, including a move as far out as March 2027. We noted that firmer goods and services inflation, along with risks linked to AI-driven demand and potential supply disruptions, were reinforcing market pricing for higher-for-longer rates.

This material may contain third-party opinions, none of the data and information on this webpage constitutes investment advice according to our Disclaimer. While we adhere to strict Editorial Integrity, this post may contain references to products from our partners.