The US dollar is likely to edge up against other major currencies in the coming months as central banks in Japan and the euro zone dive deeper into ultra-loose monetary policy, a Reuters poll found on Thursday.
The dollar is up almost 9 percent this year, largely driven by expectations for higher US interest rates that were firmed up by Federal Reserve Chair Janet Yellen saying on Wednesday that the US economy was "performing well" and could justify a hike in December.
But most other major central banks are expected to ease policy further. The European Central Bank and the Bank of Japan (BoJ) are forecast to expand already massive stimulus programmes in an attempt to boost moribund inflation in those economies.
A large majority of the more than 80 analysts polled this week cited that divergence to be the overarching driver for the dollar in the coming year.
"It's more a case of the US (dollar) edging higher, but the divergence seems to be carrying on the downside (for the euro and yen) with everyone else easing further," Mizuho Corporate Bank senior economist, Colin Asher, said.
"It looks like policy easing is re-accelerating. We've obviously had the PBOC (People's Bank of China) and the Riksbank easing policy, both the antipodean central banks have sounded dovish and the ECB has promised to consider all options in December."
The euro is expected to trade at $1.09 to the dollar in one month, $1.07 in three months and $1.05 in a year from the $1.08 it was at on Thursday, similar to last month's poll.
Strategists also said there was almost a one-in-three chance the euro will fall below parity with the US dollar by the end of 2016.
Goldman Sachs, BofAML, ING and RBS are among major banks are still forecasting the euro to reach parity with the dollar or below over the coming year, a view they have held on to since the beginning of 2015.
But the majority view is that the euro has already tested its floor and has does not have far to go below the lows hit this year.
Currency speculators have increased their bets against the euro in the latest week, according to data from the Commodities Futures Trading Commission, while bets in favour of the dollar rose to their highest since the global equity sell-off in September.
Long positions on the yen decreased while short positions increased. The yen is forecast to trade around the current level of 121 to the dollar in one month but weaken to 122 in three months and 125 in a year.
The BoJ left policy unchanged in October, nudging the yen higher in the past week, but its strength is likely to be short-lived as further stimulus is expected.
When measured against a basket of currencies, the dollar is forecast to appreciate slightly. The dollar index, now around 98.0, will rise a touch to 98.1 by year end and to 100.7 at the end of 2016, the poll found.
Sterling, however, will remain stable over the next year, trading between $1.52-1.53. Analysts as a whole did not give a clear view on what the risks were to their forecasts. The Bank of England (BoE) is expected to follow the Fed and hike interest rates from a record low next year, meaning the divergence between the US and Britain should stay roughly stable. The BoE is due to keep rates at historic lows on Thursday, when it releases its quarterly Inflation Report as well as an interest rate decision and the minutes from its latest Monetary Policy Committee (MPC) meeting.