The recent rebound of the U.S. dollar is expected to diminish in the coming months, as declining oil prices alleviate inflation concerns and reduce expectations for Federal Reserve rate hikes, according to a majority of foreign exchange strategists surveyed in a poll. However, a significant minority believes that the dollar’s strength is likely to persist. A brief respite from the U.S.-Israeli conflict with Iran contributed to a 4% increase in the value of the dollar from May’s low, while crude oil prices returned to levels seen prior to the conflict. Additionally, long-dollar positions reached their highest point since January 2025, according to data from the Commodity Futures Trading Commission. The greenback has garnered support from U.S. inflation that significantly exceeds the target, a robust economy, high Treasury yields, and reports indicating that in June, nearly half of Fed policymakers anticipate an increase in rates this year. Interest rate futures are indicating the expectation of nearly two increases by the end of the year.

However, FX analysts in the June 26-July 1 survey maintained their longstanding perspective that the dollar will depreciate, contrary to the prevailing pricing trends. Poll medians indicated an appreciation of the euro by 2% to $1.16 by the end of September, reaching $1.17 by year-end and projected to rise further to $1.18 in one year. “There’s the ⁠possibility the Fed could end up cutting interest rates in 2027, so we’re more dovish than the market on the Fed. Those hikes getting priced ​out would weigh against the dollar,” said Jane Foley predicting a choppy range in coming weeks. The distribution of forecasts in the poll indicated that the weaker dollar perspective is encountering opposition from an increasing faction anticipating smaller declines, or potentially gains, in the near term. A robust 71% majority, comprising 29 out of 41 respondents—who have generally demonstrated accuracy in surveys conducted this year—indicated that current net-longs would either maintain or rise by the end of July.

The remainder anticipated a downturn. No one anticipated a shift to net-short positioning. Approximately one-third of the strategists surveyed, specifically 23 out of 70, anticipate that the euro-dollar will either remain stable or potentially decline over the next three months. That is more than approximately 20% in June’s survey. “We recently revised up our forecast to see additional dollar appreciation at least until the third quarter,” said Alex Cohen. “The way (Fed Chair Kevin) Warsh articulated things on the inflation front was a clear bullish-dollar signal in our view…and the data supports that. We’re looking for a much more hawkish outcome from the Fed relative to many other G10 central banks.” The European Central Bank, having increased rates in June, is anticipated to implement one additional hike this year. Dan Tobon, indicated a significant probability that the euro might decline to approximately $1.11 in the upcoming months, which represents a decrease of over 4% relative to the poll median.

“It’s not our base case we’re going to have this big inflationary wave…but if we get some upside surprises in the data, ​we’re likely to see even more hawkish repricing to a higher dollar. Whereas if the data misses, it’s ​not necessarily going to ⁠quickly unwind all the hawkishness priced in,” Tobon stated. A stronger dollar poses a significant threat to the Japanese yen, which recently declined to a 40-year low and has since depreciated further to approximately 163/$, increasing the likelihood of official intervention. Strategists maintained their forecast for a gradual recovery over the next year, anticipating that persistent inflation will compel the Bank of Japan to continue its recent rate hike with additional tightening measures. Poll medians indicated that the yen is expected to strengthen to approximately 159/$ by the end of September, 156/$ by the end of the year, and 154/$ within a year.