The dollar is set to rise against major currencies well into next year, according to the latest Reuters foreign exchange poll, reflecting a global shift away from emerging markets as the world's largest economy picks up.
"We are now witnessing a dollar boom market," said David Bloom, head of FX strategy at HSBC. "The dollar is powering against everything."
Meanwhile worries the euro zone crisis, dormant for 10 months, is coming back, are pressuring the euro. Portugal has erupted in political crisis, sending bond yields there soaring, with Spanish and Italian yields following suit.
Published a day ahead of a European Central Bank policy meeting that is expected to yield no new support for the bloc's very shaky economy, the latest Reuters poll, taken this week, has the euro falling to $1.25 by this time next year.
The euro was already trading at a five-week low of $1.2923 on Wednesday, moving closer to a recent trough of just below $1.28 carved in mid-May. That coincides with rising global bond yields, and a significant rise in long-term U.S. rates.
"The dollar continues to have a broad advantage in that higher U.S. rates likely do more damage to recovery abroad than to the U.S. recovery," wrote Steve Englander, strategist at Citi, in a note.
Indeed, financial markets remain fixated on trying to clock when the Federal Reserve will trim back its massive monetary stimulus programme - particularly when it will reduce the size of its $85 billion monthly bond purchases.
Fed officials have been at pains to point out that may be a long way off and is dependent on continued improvement in the economy and the labour market.
FX strategists were broadly in agreement with economists and fixed-income forecasters polled by Reuters over the past few weeks on when the Fed is likely to trim the stimulus.
Half of those polled said September and almost all the rest said in the fourth quarter, with only a handful expecting the Fed to wait until early next year.
The poll has the dollar rising against the Japanese yen as well, putting an end to a recent period of yen strength, with the consensus view pegging dollar/yen at 100 in a month, 105 in six and 107 by the middle of next year. <JPY/POLL>
But while the dollar is most likely at the start of a broad upward trend, coinciding with a rise in global sovereign bond yields, not all forecasters are looking for the euro to retreat.
Net longs declined for the fourth month according to the latest Commodity Futures Trading Commission data.
Analysts at Credit Suisse argue that recent economic data in the euro zone have been firmer - but certainly not impressive - which means the likelihood of any additional monetary steps from the ECB have diminished.
"The main takeaway from the most recent ECB press conference was that the Governing Council would need to see further deterioration in data before increasing stimulus," noted Credit Suisse strategist Ric Deverell. "The stronger-than-expected tone of recent data is evidence that this deterioration has not materialised."
The latest set of purchasing managers data for the euro zone suggest that while economies like Spain and Italy are still struggling, there is a very good chance the bloc, mired in recession, may recover before the year is out.
(Analysis and reporting by Hari Kishan and Rahul Karunakar; Polling by Sarmista Sen and Hari Kishan; Writing by Ross Finley; Editing by Stephen Nisbet)
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