The U.S. dollar has been under pressure since the start of the year, and analysts believe it may stay weak for the next 12 months. A Reuters poll of FX strategists showed that the heavily crowded short-dollar trade is likely to remain in place.
Investors have turned away from the greenback as concerns grow about the rising U.S. fiscal deficit and fears that the Federal Reserve’s independence is being tested. Instead, they are moving into other major currencies and safe-haven assets such as gold. Gold prices have surged more than 47% this year, hitting record highs.
John Hardy, head of FX strategy at Saxo Bank, said the fiscal outlook is the “800-pound gorilla” in the markets. According to him, gold reflects investor sentiment on U.S. fiscal stress. He noted that all major economies are under pressure, but gold remains the safe alternative.
So far, the dollar has weakened by about 10% this year. Analysts expect this trend to continue as the Federal Reserve is forecast to cut rates further to support the labor market. By contrast, the European Central Bank has likely finished its easing cycle.
Recent data shows U.S. non-farm payrolls rose only 22,000 in August. Another Reuters poll expected 50,000 jobs for September, but the government shutdown has delayed the report. Still, most analysts believe the dollar will remain weak in the near term.
Dan Tobon, head of G10 FX strategy at Citi, said he would stay out of the dollar except for short-term tactical plays. Nearly 75% of analysts in the September 26–October 1 Reuters poll said short-dollar positions will either increase or remain steady by the end of October. Data from the Commodity Futures Trading Commission confirms that short positions have been strong since April.
Lee Hardman, senior currency analyst at MUFG, said the dollar could weaken further over the next 6–12 months as the Fed continues to lower interest rates. Other central banks, like the ECB, are nearing the end of their rate-cutting cycles, giving them less reason to ease further.
On September 17, the Fed cut its benchmark rate by 25 basis points to 4.00%–4.25% and signaled more reductions in October and December. Futures markets are pricing in a 95% chance of another October cut, according to the CME FedWatch Tool.
The Reuters poll of nearly 80 strategists showed the dollar weakening against all major currencies over three, six, and 12 months. More than 70% of respondents said the dollar is more likely to end 2025 weaker than stronger.
The euro, already up 13% against the dollar this year, is expected to strengthen further, trading at $1.19 in three months, $1.20 in six months, and $1.21 within a year. Analysts also forecast gains for the Japanese yen, Australian dollar, and New Zealand dollar. The yen is predicted to rise about 6% to 139 per dollar, while the Aussie and Kiwi are expected to climb between 4% and 6%.
