The US dollar will continue its rally for at least another six months with no contender in sight to challenge its dominance, a Reuters poll of foreign exchange analysts found.
Deteriorating global trade conditions have hurt most economies, boosting demand for dollar-denominated assets since early last year, keeping the greenback strong.
"The factors that are keeping the dollar strong over the last eight months or so are likely to persist for a while and the dollar's strength will remain extremely thematic for now," said Jane Foley, senior currency strategist at Rabobank in London.
According to the latest data from the Commodity Futures Trading Commission (CFTC), currency speculators kept raising their total net long dollar positions, a trend unlikely to change in the near-term.
Two-thirds of 50 analysts who answered an additional question in the monthly Reuters poll taken Sept 30-Oct 3 said the dollar rally should continue for at least six months.
Still, the US economy is showing some signs of recession risks. This week, news of weaker-than-expected consumer spending in August was followed by data showing manufacturing activity hit a more than decade low in September, probably due to the US-China trade war and a strong dollar.
That sent jitters through financial markets and renewed calls for further rate cuts from the Federal Reserve.
"The dollar is only going to start weakening when the data becomes pretty conclusively weak enough in the US to make the markets think that we are getting more than precautionary easing," said Kit Juckes, FX strategist at Societe Generale in London.
"We are at an extreme now and there are enough signs that US growth is properly rolling over," he said.
If the Fed heeds calls for further easing, it would narrow the interest rate gap between the United States and other major economies.
But a significant minority of analysts - 18 of 49 - who answered another additional question said rate differentials would be the main reason for the dollar to remain strong.
Fifteen said an escalation in the US-China trade war, 11 said positive returns on dollar-denominated assets and the other five gave varied opinions.
"There will be counter-forces on the dollar, there will be these interest rate differentials on one side, but the market is not going to entirely give up on the dollar because it will still have a safe-haven function," Foley said.
Analysts still expect most major currencies to post gains against the dollar in a year's time, a prediction that has repeatedly been wrong. Still, they forecast gains to be smaller than predicted in last month's poll.
The euro has lost around 4% this year but is forecast to trade at $1.10 by year-end, around where it was trading on Thursday. It is then expected to rise marginally to gain 3% to trade around $1.13 in a year.
That 12-month view for the common currency is the lowest since July 2017 and the sixth time this year median forecasts have been trimmed.
"We are mostly looking for EUR/USD to bottom more than a euro recovery really," said Rabobank's Foley.
Almost all responses in the poll were collected before the World Trade Organization gave Washington a green light to impose tariffs on $7.5 billion worth of EU goods annually, putting further pressure on the euro and the underlying economy which is struggling to grow.
"The euro area continues to lead the global race to the bottom on growth. This has already weighed on the euro all year. Not only does it warrant additional EUR weakening in our view, but is also likely to weigh on linked currencies," noted analysts at JP Morgan.