It is possible that the US dollar will lose its shine.
A Reuters poll reveals that currency analysts are growing more uneasy as a previously crowded dollar market begins to shrink amid uncertainty in policy.
The dollar faces mounting pressures due to erratic policies and rising trade tensions.
Trump launched a war of trade with America’s largest trading partners. He imposed 25% tariffs on Canada and Mexico as well as imposed import duties on Chinese goods.
The currency has already been affected by these aggressive trading tactics and the weeks-long unwinding of net-long positions in dollars that are near decade-high.
Commodity Futures Trading Commission data shows that this week, the dollar has dropped nearly 2.5% compared to a basket major currencies.
The Reuters poll, which was conducted from March 3-5, reveals a growing pessimism about the future of the dollar.
Nearly 60% of currency analysts (18 out of 31) believe that dollar net bets are likely to decline by March’s end.
Only five respondents expect an increase of net long positions, while eight predict little change.
Euro Factor
The latest FX survey was conducted both before and following the recent tariff announcements.
Euro also surged after news broke that the parties seeking to form Germany’s next government had agreed to establish a 500-billion-euro infrastructure fund ($534,75 billion), and to overhaul borrowing regulations to revamp Germany’s military and to revive its largest economy.
The long-term trend of the dollar could be affected by this shift in German fiscal policies.
Two-sided coins
George Saravelos is the head of FX Research at Deutsche Bank. He said that the risks facing the dollar in the coming months were equal-sided.
One hand, the tariffs as well as increased geopolitical unrest support a strong dollar. A shift in German fiscal policies and disruptions across many fronts are downside risks. Deshalb, we are neutral.
Saravelos states that the “large degree of uncertainty” will keep dollar positions from rising in either direction.
Euro outlook: A forecast of weakness
According to median estimates, despite recent gains in the euro’s value, which is currently at $1.07, and has gained nearly 3% versus the dollar since Monday morning, it was predicted to drop to $1.03 within three months, and to trade at $1.04 after six.
These forecasts are similar to those of a survey conducted in February, which suggests that they could be updated soon, depending on the economic climate.
The dollar rose nearly 10% from October until early January on the back of continued US economic strength and the expectation that Federal Reserve would only be able to cut interest rates by one or two.
The dollar is now down about 5%. Most of these losses have occurred in recent weeks, based on economic signs that indicate a slowdown. Interest futures are pricing the Fed to reduce rates three times by the end of the year.
Kit Juckes is the head of FX Strategy at Societe Generale. He told Reuters that “the world has never before been so long on US assets.” If they start to fear being in these assets, this will be a major factor for dollar weakness.
Juckes said that his “most fundamental concern about the dollar” is that, even though it’s been able to reach levels that it hasn’t reached since 1985 (in real terms), it just takes a couple of chinks to make it look weaker.
As updates are made, this post Trump’s tariffs have a negative impact: Reuters Poll predicts further Dollar weakness could be changed.
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