By Sarupya Ganguly
BENGALURU (Reuters) – A crowded strong U.S. dollar trade is set to get more bunched up in coming months, with near one-third of currency strategists polled by Reuters now expecting the euro to fall to parity with the dollar or below versus only one-fifth last month.
The greenback has been on a rampage since late September, soaring over 7% against a basket of major currencies and hammering the euro down to almost $1.01 on Feb. 3 – just a whisker away from parity, a milestone last hit in November 2022.
Recent data from the U.S. Commodity Futures Trading Commission also showed swathes of speculators piling on “bullish” dollar trade, stretching net-long bets to a near-decade high last month.
That strength will not falter any time soon, according to FX strategists in a Feb. 3-5 Reuters survey, with an 85% majority – 40 of 47 – saying current positioning would hold steady or even see a further increase in net longs by the end of February.
“The view on the dollar is bullish predominantly due to the escalating trade conflict, with our baseline forecast of the euro testing parity in Q1,” said Meera Chandan, head of FX at J.P. Morgan.
Chandan added that higher bond yields, robust U.S. economic growth and a still-strong equity market provided additional support to that forecast.
Continued U.S. economic resilience and President Donald Trump’s potentially inflationary tariffs and tax-cut policies have put the brakes on market expectations for further Federal Reserve rate cuts, helping lock in the currency’s gains.
“Beyond Q1, U.S. exceptionalism will eventually run out of steam which should cause the dollar to weaken over the longer run, but conviction on when this turning point will happen is quite low,” Chandan added.
Some analysts also cited Trump’s erratic policy announcements, making forecasting more difficult than usual – year-ahead euro estimates are the most varied since May.
‘POLITICAL KRYPTONITE’
“We’ve seen just how sensitive the market is to headlines every day as the clouds of tariff uncertainty hang over the market. If we do get a trade war and tit-for-tat, then that has upside inflation and negative growth implications, and inflation right now is political kryptonite,” said Alex Cohen, FX strategist at Bank of America.
The latest poll found near one-third of FX strategists – 20 of 66 – seeing euro-dollar tumbling to parity or lower in their three-, six- or 12-month point forecasts – a considerably sharper tilt towards dollar dominance than in a January survey.
