Nineteen out of fifty-one strategists polled expressed concern over the US Dollar’s safe-haven status. Opinions on positioning by the end of April varied, a shift from the previous expectation of increased ‘long’ dollar trades.
The median forecast anticipates EUR/USD trading at 1.0700 in three months, rising to 1.0800 in six months, and reaching 1.1000 within a year. Currently, EUR/USD is at 1.0790, a decrease of 0.2% for the day.
Historical Dominance Of The Us Dollar
The US Dollar is the official currency of the USA, dominating global foreign exchange turnover at over 88%, amounting to $6.6 trillion daily. Historically, it was backed by Gold until the end of the Gold Standard in 1971.
Monetary policy guided by the Federal Reserve primarily influences the USD, with interest rate adjustments aimed at controlling inflation and fostering employment. Raising rates typically strengthens the dollar, while lowering them may weaken it.
Quantitative easing involves the Fed printing more dollars to increase credit flow, generally leading to a weaker currency. Conversely, quantitative tightening occurs when the Fed ceases bond purchases, usually supporting the dollar’s value.
With less than half of the strategists polled comfortable with the US Dollar as a safe harbour, the sentiment is evidently shifting. This contrasts with what had, not long ago, appeared a widespread consensus in favour of accumulating long positions in the currency. This change is not theoretical—positioning data has already begun to reflect hesitation. For those of us involved in pricing risk, this prompts a need to reassess not only existing exposures but also the assumptions underpinning directional bias, particularly in options structures where asymmetry can be costly.
Expectations For Eur Usd And Fed Policy
Given that the median projection sees EUR/USD climbing from its present level of around 1.0790 to 1.1000 over the next year, there’s clear anticipation of a gradual dollar decline relative to the euro. This outlook implies a market belief that rate differentials could narrow or that diverging growth patterns may favour the eurozone. It’s not hard to infer that inflation control in the US might soon take a back seat to growth concerns, especially if incoming data begin to soften.
The influence the Federal Reserve holds here is direct and measurable. It’s not simply a question of whether they are hiking or cutting—it’s about what the timing and scale of those moves signal. Increased borrowing costs, associated with higher rates, tend to attract capital; yet we’ve clearly reached a point where the market questions for how long that magnetism can last. This is where volatility sellers may face mounting pressure, especially in higher-delta inverse gamma trades tied to front-end Fed pricing.
Further, should the Fed start signalling a shift towards easing—even if only hinted—the results could move swiftly through the derivatives curve. Cross-currency basis swaps and rate-differential trades would bear watching closely, as policy divergence expectations recalibrate. That recalibration won’t necessarily be orderly, and it will provide opportunities—but only for those positioned on the right side of the momentum.
We must also consider shifts in quantitative policy which are now far more relevant than they were during the pre-pandemic era. If the central bank moves towards even partial stimulus resumption, we’ll see flows that alter dollar availability—not just at a wholesale level but broad funding conditions. This matters acutely for those managing carry strategies, especially when using funding currencies like the Euro or Yen.
What Powell’s committee does with balance sheet runoff is not just a technicality. It directly affects duration risk, liquidity premiums, and forward expectations. For traders running dollar-linked macro exposures, or hedging via options, this backdrop commands a more tactical approach. Dynamic delta hedging may become expensive should implied vols stay elevated, or worse, unanchored.
As EUR/USD direction sees growing confidence in a slow grind higher, we will likely find ourselves re-evaluating not just the nominal rate paths but relative resilience across G10 FX. That some strategists now question the long-standing safe haven premise deserves attention—not panic, but clear, reasoned recalibration.
At this stage, holding onto static assumptions in volatility pricing, particularly within calendar or diagonal spreads, could prove unforgiving. Understanding the policy path, reading inflation breakevens, and assessing cross-asset signals from rates and credit markets will be key to navigating what is shaping up to be a conviction-challenging period across dollar-linked structures.
