The dollar is set to strengthen only slightly against major currencies in the coming year, a Reuters poll found, despite most central banks leaning towards easier policy on global economic worries stemming from China.
Doubts are also growing about how soon the Federal Reserve can deliver another interest rate hike and now a majority of foreign exchange strategists say the biggest risk to their forecasts is further evidence of the global slowdown worsening.
"There may still be some dollar appreciation based on interest rate differentials but we don't think the dollar is going to be able to gain anything more than moderately," Rabobank senior currency strategist Jane Foley said.
"The forecasts are positioned for a fairly nasty turn of events, or at least a continuation of the gloom that we've seen this year."
Most central banks appear to be braced for more bad news.
The Bank of Japan last week was the latest to surprise markets by cutting its deposit rate to negative, charging banks for parking cash with it as other central banks, including the European Central Bank, have done.
A slight majority in the poll said the -0.1 percent BoJ deposit rate would be effective in keeping the yen, which is already relatively weak, under pressure through the year. The BoJ has made clear it is ready to cut again if needed.
But as a counterweight, the yen's traditional status as a safe haven when markets are in turmoil means if the broad global equity market sell-off seen since the start of the year continues, it could easily strengthen.
"The movement to negative interest rates is a very small one ... but what it does is it effectively signals that the BoJ was not happy with the yen strengthening in the way it had been in the last two months," RBC's head of FX strategy Adam Cole said.
"Although the BoJ can soften the impact of risk aversion on the yen I don't think it can break the relationship entirely."
Trading at 119.3 on Wednesday, the yen is forecast in the poll to weaken to 123.0 in three months, stay the same in six months and drop to 125.0 in a year from now. Those forecasts have changed only slightly from a month ago.
Data from the Commodity Futures Trading Commission showed net long positions on the yen increased to their highest in four years in the week to January 26, just before the BoJ's surprise decision.
Investors also trimmed net short positions on the euro, which looked like it might be headed for parity with the dollar long before 2015 closed out and is now expected to weaken only slightly and by less than forecast last month.
The euro, currently trading at 1.09 to the dollar, will slip to 1.06 in three months, 1.05 in six months and 1.04 in a year.
Like the Bank of Japan, the European Central Bank is purchasing assets in large quantities and has a negative deposit rate. The ECB is set to cut that rate further next month and economists see an even chance it will increase its monthly bond purchases.
The euro and yen make up a large percentage of the dollar index, which measures the value of the greenback against a basket of six major currencies.
The index, at 98.65 on Wednesday, is forecast to rise just 2.5 percent to end 2016 at 101.15.
Tighter credit conditions since the start of the year, as global markets reeled in the aftermath of an oil price rout on excess supply, and the latest bout of financial uncertainty have sowed doubt the Fed will follow up its December rate hike with another one in March.
Financial markets currently do not expect even one Fed rate hike this year.
Expectations for a Bank of England rate hike are also fading, with economists in a Reuters poll saying late this year and financial markets saying not until 2018.
The latest poll found sterling will recover some of its recent lost ground later this year. But that optimism is threatened by uncertainty around Britain's upcoming referendum on the country's European Union membership.
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