U.S. Dollar Strength Forecast

By Sarupya Ganguly
BENGALURU (Reuters) – The U.S. dollar is expected to maintain its recent strength, bolstered by solid domestic economic data and a reduced likelihood of Federal Reserve interest rate cuts, according to a Reuters poll.

A 4% rally in October is attributed to speculation regarding the upcoming presidential election on November 5. Analysts also highlight strong consumer spending and labor data as contributing factors. The latest polls indicate a tight race between Democratic Vice President Kamala Harris and Republican candidate Donald Trump.

Economic Outperformance
U.S. economic strength has led to financial markets anticipating a higher Fed funds rate by year-end than previously expected. A separate Reuters survey predicts two additional quarter-point cuts for this year.

According to experts, the dollar's momentum is likely to continue, especially as Fed policies contrast with those of the European Central Bank, which may adopt a more dovish stance.

Dan Tobon, head of G10 FX strategy at Citi, stated, "In the U.S., we started getting better economic data… in Europe we started getting weaker data." He predicts the dollar will increase leading into the election but may stabilize afterward.

Future Predictions
The euro is projected to trade around $1.09 by the end of November, eventually reaching $1.10 in three months, based on forecasts from over 70 forex strategists.

In response to a separate question, a striking 90% of respondents anticipated better dollar performance if Trump wins, forecasting a 1.5% gain, while a Harris victory could lead to a 1% decline. Alex Cohen, FX strategist at Bank of America, explained that trade and tariff policy under Trump could significantly impact the dollar.

Also, while both candidates' policies could influence inflation, the consensus suggests Trump's would result in higher inflation pressures.

The euro is expected to climb to $1.11 by April and $1.12 within a year, according to median forecasts, although the dollar's longer-term outlook could turn negative in a soft landing scenario.