By Sarupya Ganguly
BENGALURU, Dec 3 (Reuters) – FX strategists largely stuck to forecasts for a weaker U.S. dollar over the coming year on Federal Reserve rate cut bets but a sizeable minority have now broken away from the consensus, predicting it would strengthen instead, a Reuters survey showed.
The greenback, down roughly 9% for the year, is on track for its worst year since 2017 as tariff risks, labour market jitters, fiscal concerns and doubts over the central bank’s independence have piled up.
That backdrop has kept the “sell-dollar” trade firmly in place with positioning remaining net short since April, according to Commodity Futures Trading Commission data.
Asked how that stance would shift by end-December, about 85% of forex strategists in a November 28 to December 3 Reuters poll, 44 of 52, expected little change or an increase in net-short positions. Only eight forecast a reversal to net longs.
That was in line with interest-rate futures currently pricing a near-85% chance of a 25-basis-point reduction at the December 9-10 Fed meeting.
Still, mounting divisions within the central bank – worsened by a recent government shutdown stalling key data releases – have left policymakers firmly split over whether more cuts are needed to support the job market or are too risky given persistently high inflation.
Even so, survey medians showed the euro holding at around $1.17 in three months, strengthening around 2% to $1.19 in six and then to $1.20 in a year.
“Our outlook is for the dollar to gradually weaken going into next year – we think the Fed will continue to lower interest rates. But the Fed will deliver more of a hawkish cut at the December meeting to reflect more dissent from FOMC members who are against it,” said Lee Hardman, senior currency economist at MUFG.
“We still think the dollar is overvalued but not as deeply as it was at the start of this year.”
DOLLAR ‘PIVOT’
Despite that broadly bearish outlook, views on the greenback diverged sharply.
Just over half the strategists, 31 of 60, said the bigger risk to their end-2025 forecast was a weaker dollar. The remainder said stronger.
That split was also visible in near-term forecasts. About 30% of respondents now expect the greenback to rise over the coming three months, the poll showed, compared with only 6% in November, suggesting the long-held conviction around the weakening trend may be cracking.
“Over the next couple of months, we should start seeing a real pivot. We think things will be looking a lot better by the end of Q1, and that will create a platform for the dollar to rebound and euro/dollar to potentially head to $1.10 by late summer,” said Dan Tobon, head of G10 FX at Citi.
“There was a big story about people who were going to allocate away from the U.S., but that never really happened on the equity side. And while that rally continues, it can still be a positive dynamic for the dollar.”
Fueled by gains in technology stocks, especially AI-related companies, the S&P 500, already up more than 16% this year, was forecast to post another double-digit gain by end-2026, a separate Reuters survey found last week.
Much of that, however, hinges on the nearly four rate cuts priced into futures by then – bets analysts say are too aggressive.
“The market is too optimistic about future Fed rate cuts. There might be a bit of a bias towards pessimism in the market right now beyond what the data would justify,” said Steve Englander, head of G10 FX strategy at Standard Chartered.
(Other stories from the December foreign exchange poll)
(Reporting by Sarupya Ganguly; Polling and analysis by Renusri K, Mumal Rathore and Aman Soni, editing by Ed Osmond)
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