The dollar rally will regain momentum from next month, a Reuters poll of foreign exchange strategists showed on Wednesday, although its strength will depend on economic data and the timing of a Federal Reserve interest rate hike. The US currency is up more than 20 percent since last summer but has been hampered recently by a run of disappointing data from early 2015 that caused markets to revise the expected timing of a Fed rate hike to later in the year.
But 41 of 55 currency strategists polled this week said the dollar was just pausing for breath and will rally again soon.
Many predicted the upswing would start next month on expectations that Fed Chair Janet Yellen will set the stage for a hike in the third quarter at the upcoming policy meeting.
The Fed has said that a rate rise, which most economists expect will come in September, will be dependent on improving economic data. Friday's employment report could provide a spark if new jobs created in May exceed the 225,000 market consensus.
"The onus on economic data to surprise sharply to the upside over the next few weeks is fairly high, else the Fed may be unable to prepare the market at the June FOMC for hikes commencing in Q3," analysts at Barclays wrote in a note.
The difficulty is the strong dollar itself is one of the main reasons behind disappointing data since the start of the year and has already started to pressure US company earnings.
Barring the European Central Bank, which has just begun a bond buying programme that is expected to last until September 2016, the flurry of monetary easing this year in developed economies at least appears to have tapered off.
"Other central banks are pinning a lot of faith on the Federal Reserve. If the Fed misses a chance to hike in September then rate cuts elsewhere are back on the agenda," said Nick Parsons, global co-head of foreign exchange strategy at NAB.
"The central bank pause outside the US might end or might as well end if the Fed does nothing in September. The important thing is that the rate differentials will be maintained and that will underpin the dollar."
In the meantime, strategists also say the close inverse relationship between the price of oil and the dollar will remain. Thirty-three of 44 strategists who answered an extra question said so, while 11 said it would ease.
If they are right, oil prices could remain fairly subdued. That view is supported by the latest Reuters poll of oil price forecasters.
What could have a big impact is a resolution to the stand-off between Greece and the ECB, the European Commission and the International Monetary Fund. Currency speculators have been long dollars and short euros in recent days as worries over a potential Greece default have risen.
In the latest poll, forecasters have moderately upgraded their expectations of the euro, although they expect the common-currency to trade lower in the coming twelve months.
The euro is expected to fall to $1.05 in six months and further to $1.04 in a year. But the number of analysts who forecast the euro to trade at or below parity against the dollar has fallen - from 22 in April, 19 in May to 15 in the current poll. The poll also showed strategists were confident that sterling will be less vulnerable to a dollar rally.