The U.S. dollar held gains near a 1.5% year-to-date increase on Wednesday, though strategists surveyed by Reuters expect limited directional movement through September as Federal Reserve policy signals remain sparse.
A poll conducted between August 31 and September 2 indicated that nearly 73% of 55 respondents forecast either no significant change in dollar positioning or a reduction in long positions by month-end. The median projections for the euro were $1.16 in three months, $1.17 in six months, and $1.18 in one year, reflecting modest depreciation expectations against the dollar.
The greenback’s recent strength follows a brief sell-off in August after the U.S. Treasury announced unscheduled long-dated bond purchases, which briefly weighed on yields and the currency. Renewed geopolitical tensions, including military conflict between the U.S. and Iran, later supported a recovery in the dollar. Benchmark 10-year Treasury yields reached a near-three-year high of approximately 4.82% on September 2, while total U.S. national debt exceeded $40 trillion in August.
Market participants remain divided over the trajectory of Federal Reserve policy, with interest rate futures pricing in two additional rate hikes this year. Fed Chair Kevin Warsh’s recent remarks, described as relatively hawkish but sparse, have contributed to uncertainty. Analysts note that Warsh’s lack of explicit guidance has left traders projecting assumptions about his policy stance, with some positioning shifting between hawkish and dovish interpretations.
Citi’s Dan Tobon highlighted the challenge in forecasting dollar movements, stating that the primary driver remains the repricing of Fed expectations. However, he cautioned that escalating geopolitical risks could quickly alter the outlook. Vincent Reinhart of BNY Investments suggested a near-term depreciation story for the dollar, citing expectations that the Fed will not tighten as aggressively as priced and that the Treasury may act to suppress longer-term yields.
Wells Fargo’s Erik Nelson emphasized the volatility stemming from uncertainty around Warsh’s policy leanings, noting that traders are reacting to projections rather than concrete signals. The net long dollar positions held by traders have declined from an 11-year high, reflecting a cautious stance amid shifting macroeconomic and geopolitical conditions.
