Although the US dollar has gained strength against rival currencies in the past month, analysts believe this rise will not be long-lasting. The dollar index (DXY) has gained approximately 3% since mid-September, but this increase is largely thought to be due to temporary factors.
Markets note that delayed economic data due to the US government shutdown and political uncertainties in Japan and France are supporting the dollar.
However, experts emphasize that it is only a matter of time before this trend reverses.Bannockburn Capital Markets strategist Marc Chandler said, “I think the dollar will weaken again in the next 3–6 months. Because the US economy will slow down and interest rates will fall.”
According to CFTC data, anti-dollar positions have halved from a two-year high in mid-September. TD Securities analysts say the current movement is essentially a “position adjustment”.
The strengthening of the dollar was also influenced by the political chaos in France weakening the euro and the leadership change in Japan putting pressure on the yen. However, according to Morgan Stanley strategists, these price movements may be “overreaction.”
Nevertheless, the long-term outlook is against the dollar.
According to a Reuters survey in October, analysts predict the dollar will depreciate against major currencies in the next 3, 6, and 12 months. The Federal Reserve’s renewed interest rate reduction cycle could accelerate the weakening by reducing the cost of hedging against the dollar. According to Chandler, “The dollar’s supercycle is over, and we are now in a downward phase.” The Federal Reserve’s renewed interest rate reduction cycle could accelerate the weakening by reducing the cost of hedging against the dollar.
