Introduction
Recent findings from a Reuters survey indicate that most foreign exchange strategists expect traders to continue holding net short positions on the US dollar throughout November. Out of 45 respondents, roughly two-thirds predicted that bearish positioning on the greenback would persist. This sentiment reflects broader market expectations that the dollar will remain under pressure in the coming months due to monetary policy changes, softer economic data, and evolving global financial dynamics.
The bearish tone toward the dollar is not entirely new. Over the past year, the currency has already weakened against several major counterparts, but market participants believe the trend could continue if Federal Reserve policies align with current expectations for multiple rate cuts over the next 12 to 18 months.
Underlying Drivers Of The Dollar’s Weakness
Expectations of Federal Reserve Rate Cuts
A major factor behind the sustained bearish sentiment toward the dollar is the expectation of future rate cuts by the Federal Reserve. Many investors and strategists anticipate that the Fed will deliver several rate reductions through 2026. This belief stems from signs of cooling inflation, slower economic growth, and the central bank’s efforts to guide the economy toward a soft landing.
However, the timing and number of these cuts remain uncertain. Federal Reserve Chair Jerome Powell recently emphasized that a December rate cut is not guaranteed, hinting at internal divisions within the central bank about the pace of monetary easing. This uncertainty has added volatility to the dollar’s outlook, with traders trying to balance expectations of easing against the risk of the Fed maintaining a more cautious stance.
Data Disruptions and Reduced Market Visibility
Complicating the outlook further is the recent disruption to official US economic data following an extended government shutdown that lasted more than a month. The pause in data releases has forced analysts and policymakers to rely on private sector indicators and alternative data sources. This has reduced clarity around the true state of the US economy, leaving both the Fed and the market uncertain about the next policy steps.
Limited visibility on inflation, employment, and consumer spending means traders are positioning based on assumptions rather than concrete data. This contributes to greater volatility and speculation, with many erring on the side of expecting a weaker dollar given the historical tendency for rate-cut cycles to coincide with currency depreciation.
Positioning and Market Behaviour
While most traders remain net short on the dollar, some strategists suggest that bearish positioning is not as extreme as it was earlier in the year. Proprietary indicators show that sentiment has moved closer to neutral levels, meaning there is less crowding in the trade. This opens the possibility for short-term rebounds in the dollar if market data or Fed communications turn unexpectedly hawkish.
Such a setup often leads to what traders call a short squeeze—a rapid rise in the dollar as traders close out bearish positions to limit losses. Although the consensus still expects the dollar to drift lower, this dynamic underscores how fragile sentiment can be when positioning becomes heavily one-sided.
Forecasts for the Euro and Other Currencies
According to the same survey, the euro is expected to strengthen modestly against the US dollar in the months ahead. The median forecast places the euro near 1.18 within three months, rising to 1.20 in six months and around 1.21 in a year. These projections are consistent with expectations that European Central Bank policy will remain steady while the Fed moves toward easing.
A narrow majority of analysts—just over half—believe the dollar is more likely to weaken further than current forecasts imply by the end of the year. This outlook aligns with broader market sentiment that the balance of risks favours depreciation rather than appreciation of the US currency.
Several strategists argue that structural factors are also influencing these forecasts. One former Federal Reserve economist observed that political influence on monetary policy may increase over the next few years, potentially pushing the Fed toward maintaining lower interest rates for longer. Such developments would reinforce expectations of a weaker dollar over the medium term.
Implications For Traders, Investors, And Policymakers
For Currency Traders and Investors
For short-term traders, the expectation of ongoing dollar weakness presents both opportunities and risks. Traders who are long on non-US currencies like the euro, pound, or select emerging-market currencies could benefit from further dollar declines. However, because the bearish positioning is not overly stretched, a surprise rebound in US economic data or a hawkish policy statement from the Fed could trigger sharp counter-moves.
Active traders should therefore maintain flexible strategies, using tight stop-loss levels and monitoring US data releases closely. Meanwhile, long-term investors and portfolio managers may continue diversifying away from dollar assets to hedge against potential depreciation.
For Central Banks and Policymakers
The global implications of a weaker dollar extend beyond trading desks. Central banks, particularly in emerging markets, will be watching closely as dollar movements influence capital flows, commodity prices, and inflation dynamics. A declining dollar tends to ease pressure on dollar-denominated debt but can also encourage speculative inflows into riskier assets.
Policymakers will need to remain vigilant, balancing the benefits of a softer dollar against the risks of increased volatility in global financial markets.
For Corporations and Multinationals
For multinational corporations, the outlook for the dollar carries practical implications for earnings and costs. Export-oriented US firms could benefit from a weaker dollar, as their goods become more competitive abroad. Conversely, companies that rely heavily on imported materials or have dollar-denominated debts may face higher costs.
Non-US firms with revenues in stronger local currencies may also gain from dollar weakness, improving profit margins when earnings are converted back into dollars. Corporate treasurers will likely review hedging strategies to manage potential currency swings in the months ahead.
Key Risks That Could Reverse The Trend
While the dominant view remains bearish on the dollar, several factors could disrupt the narrative:
Stronger-than-expected US data: If upcoming economic reports show renewed strength in employment, inflation, or GDP, the Fed could postpone rate cuts, boosting the dollar.
Hawkish Federal Reserve communications: Any indication that policymakers are uncomfortable with market pricing for aggressive rate cuts could shift sentiment quickly.
Geopolitical shocks or financial stress: In times of global uncertainty, investors often seek safety in the dollar, leading to sudden appreciation despite weak fundamentals.
Positioning reversals: If bearish bets become overcrowded again, even a modest positive catalyst could trigger a short squeeze and drive the dollar higher temporarily.
These risks mean that while the base case favours continued weakness, traders should prepare for periods of volatility and unexpected reversals.
Long-Term Structural Considerations
Beyond short-term rate expectations, structural trends are also shaping the dollar’s future. Some economists argue that the US is entering a period where political influence over monetary policy may grow, potentially leading to more accommodative policies and sustained lower interest rates. This would weaken the dollar’s relative appeal as a high-yielding asset.
Additionally, gradual diversification in global reserves and cross-border trade settlement could reduce the dollar’s dominance over time. Although the dollar remains the world’s primary reserve currency, incremental shifts toward the euro, yuan, and other alternatives may contribute to a long-term downtrend.
What To Watch In The Months Ahead?
The direction of the dollar over the remainder of the year will depend on several key developments:
Federal Reserve meetings: Future policy statements and economic projections will set the tone for rate expectations.
US economic indicators: Employment, inflation, and consumer spending data will provide clues on whether the economy is cooling as much as markets assume.
Market positioning data: Reports from futures markets will show whether traders are increasing or reducing short exposure to the dollar.
Global risk sentiment: Equity market volatility, geopolitical events, and investor appetite for riskier assets will continue to shape currency flows.
Emerging-market performance: A weaker dollar could boost some emerging currencies, but excessive volatility might trigger central bank interventions.
Monitoring these factors will be critical for traders, investors, and policymakers aiming to navigate the shifting currency landscape.
Conclusion
The overall picture painted by the latest market survey is clear: traders remain broadly bearish on the US dollar, expecting it to stay under pressure through the coming months. The combination of expected Federal Reserve rate cuts, disruptions to US data, and growing confidence in alternative currencies all support this view.
However, the story is not one-sided. The possibility of stronger US data, hawkish Fed communications, or renewed global risk aversion could still lift the dollar temporarily. As such, while the trend favours continued weakness, market participants must remain adaptable and alert to changing conditions.