NEW DELHI: The dollar will retain most of its recent gains for at least another six months, according to a Reuters poll of foreign exchange (forex) strategists who for years mostly held the view the greenback would weaken.

       Last traded just below a 20-year high last week, the dollar index is up over 14% since the start of last year, with about half of those struck this year alone.

       That rally shows few signs of abating as the Federal Reserve (Fed) just delivered a much-anticipated 50 basis point rate hike and left the door open for several such moves in coming months to tame the highest inflation in four decades.

       “While it is true that a lot of monetary tightening has been priced into the dollar, which would normally suggest more limited upside room, we think that we definitely wouldn’t exclude more hawkish repricing in terms of the terminal rate, for example, towards the 4% mark. We think that the dollar strength induced by Fed tightening will last as long as the Fed doesn’t start pushing back against market pricing in terms of (the) terminal rate,” said Francesco Pesole, a forex strategist at ING.The Fed funds rate, now at 0.75% to 1%, has far to go based on that analysis.

       Expectations for the most aggressive monetary tightening in decades have roiled global financial markets, sending the benchmark S&P 500 down over 10% for the year and US Treasury yields to three-year highs near 3.0%.

       While higher Treasury yields were expected to keep the dollar well-bid in the near term, the May 2-4 poll of nearly 70 strategists taken just before the Fed meeting showed that analysts still expected the dollar to weaken over the next 12 months.

       “Front-loaded monetary tightening will have consequences for growth which will result in rate hike expectations later being pared, leading to a weaker dollar,” noted Lee Hardman, currency analyst at MUFG.

       Down about 7% for the year, the euro lost about 5% in April – its worst monthly performance in over seven years. It was not expected to recoup the majority of its year-to-date losses in 2022. Even so, the euro was not expected to reach parity with the dollar.

       A near 60% majority of analysts, 16 of 28, who answered an additional question said the chances the currency will reach parity versus the dollar over the coming three months were low to very low. The remaining 12 said high to very high.

       The median forecasts showed the common currency would strengthen to US$1.07 (RM4.65) and US$1.09 (RM4.74) in the next three and six months, a gain of 1.4% and 3.3% respectively. It traded around US$1.055 (RM4.59) on Wednesday. — Reuters