By Sarupya Ganguly
BENGALURU (Reuters) – The U.S. dollar is set to tighten its stranglehold on global currency markets with little to stop its remarkable run, with a significant number of currency forecasters polled by Reuters expecting the dollar to rise to parity with the euro in 2025.
The dollar rose more than 7% against a basket of major currencies last year and fell just shy of an 8% gain in 2022 – a seven-year high – pushing the euro to the brink of dollar parity and a record low in more than two years from $1.02 on January 2.
While forecasters in the Reuters polls — long advocates of a weaker dollar — were largely wrong in their average point forecasts last year, additional questions, especially about the risks to those estimates, reflected the currency’s relentless rise.
Much of that was due to the dollar’s nearly 8% appreciation in the final quarter of 2024, fueled by continued and often unexpected U.S. economic resilience.
A signal from the US Federal Reserve in December that it is in no hurry to cut rates further, along with inflation fears rooted in newly elected President Donald Trump’s proposed tariff and tax policies, have only amplified these gains .
“It may sound like a broken record, but our view for the coming months is that the dollar will still be quite strong. Even considering what potential new policies could be unveiled with the new administration – the dollar should be in favor. In some ways there is a sense of ‘there is no alternative’, says Paul Mackel, Global Head of FX at HSBC.
Interest rate futures now fully factor in just one Fed rate cut by the end of 2025 and cast doubt on the possibility of a second, compared to speculation that the European Central Bank will cut rates by nearly 100 basis points by then.
That, combined with the lure of higher longer-term U.S. Treasury yields and expectations of bigger rate cuts by other major central banks, is likely to limit the dollar’s downward trend, currency strategists said in a Jan. 3-8 Reuters survey , those subtle signs of a change of position.
The euro, currently $1.03, rose a modest 1% over the next three and six months to $1.04 and then to $1.05 by the end of the year, according to the average views of over 70 strategists, which is significantly lower than was expected a few months ago.
The latest positioning data from the Commodity Futures Trading Commission also showed that speculators had increased their net long dollar bets to the highest level since May.
“If you look at other currencies – their fundamentals, yields and other sources of uncertainty around them – you still come back to the dollar. We may have periods where the market is keen to look for alternatives, but that appears to be temporary and this year will be another example of that,” HSBC’s Mackel said.