Safe-haven flows to propel the dollar higher in the coming year: Reuters poll

Tue Jul 5, 2016 10:25am EDT
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By Rahul Karunakar

(Reuters) - The U.S. dollar will strengthen over the coming year, despite fading chances of the Federal Reserve raising interest rates, on worries Britain's vote to leave the European Union might lead to a wider slowdown in trade and investment, a Reuters poll showed.

Brexit has increased the chances for more policy easing from major central banks to prevent another global downturn, the same force that may thwart the Fed from raising rates this year.

Britain's shock vote on June 23 led to a deep global market sell-off, sending sterling to a 31-year low, with funds pouring into safe-haven gold, other currencies - the dollar, yen and the Swiss franc - and government bonds.

Positioning numbers are telling a similar tale to the latest Reuters poll of 70 foreign exchange strategists, showing speculators have increased their bets in favor of the dollar at the expense of the euro and sterling.

"The consequences of the Brexit referendum are keeping the currency market on tenterhooks. Post-Brexit vote uncertainty is also casting its shadow over the Fed outlook," wrote Ulrich Leuchtmann, head of FX research at Commerzbank.

"Financial markets have now priced out Fed interest hikes in the foreseeable future, which is currently offset in exchange rates by increased safe-haven USD demand."

The euro EUR= is forecast to trade around the $1.10 in a month from Tuesday's $1.11, weaken to $1.08 in three months and then a bit further to $1.07 in a year.

Those expectations are the weakest since March and even the number of analysts expecting the single currency to weaken has increased compared with previous months, suggesting more easing to come from the European Central Bank.   Continued...

U.S. one dollar banknotes and a Chinese 100-yuan banknote are seen in a picture illustration, in Beijing, China, January 21, 2016. REUTERS/Jason Lee