The U.S. dollar will gain broadly against the euro and the yen over the next six to 12 months but lose to sterling, according to one of the two most accurate forecasters in the October Reuters foreign exchange poll.
Sonja Marten, senior FX strategist at DZ Bank, was one of the forecasters who gave the most accurate one-month dollar rates for sterling, the euro and yen. Currency strategists at Helaba tied with DZ for the top spot.
"On the basis of the fundamental assumption of returning (U.S. economic) growth and a resolution of the (U.S.) debt crisis, we still have a medium- or long-term dollar bullish forecast," Marten said.
But she noted that the latest fiscal brinkmanship in Washington had dented investor confidence in the United States and that the dollar's ascent would not likely be in a straight line.
"They are basically going to have to show their economic resilience and their ability to solve the debt problem lastingly for investors to return."
The government shutdown and last-minute deal to raise the debt ceiling has hurt the economy and the U.S. dollar. It is trading about 2 percent weaker versus the euro for the year after being up more than 3 percent earlier in the year.
However, the short-term solution offers only a temporary fix, leaving the possibility of another bitter budget fight and government shutdown early next year.
The latest monthly Reuters FX poll found that the euro will weaken over the next year as the common currency bloc struggles to eke out growth while a return of carry trades into a higher- yielding dollar will push the yen lower. <EUR/POLL> <JPY/POLL>
But Marten expects sterling to buck the trend and strengthen over the next year. DZ expects sterling to trade at $1.65 in a year from now, a gain of about 3 percent from Tuesday's close of $1.604. Cable is down nearly 1.3 percent so far this year.
"The UK was one of the big positive surprises this year in that the growth picture developed more positively than many had thought to be possible," Marten said.
"For now, the growth is there and for the Bank of England it means that their horizon for potential rate hikes is shifting forward. Not into 2014 but definitely 2015, and potentially the early part of 2015, which wasn't at all on the cards before."
Bank of England Governor Mark Carney said in August that Bank Rate would stay at its record low of 0.5 percent at least until the jobless rate fell to 7.0 percent, something he didn't expect to happen until the third quarter of 2016.
However, recent data have been suggesting otherwise. Latest evidence came from Tuesday's services Purchasing Managers' Index which showed the sector grew at its strongest pace in 16 years, suggesting quarterly economic growth of 1.3 percent.
Indeed, the latest Reuters poll taken last week showed the Bank of England will likely bring forward when it thinks the UK unemployment rate will fall to the threshold where it has said it will discuss changing monetary policy. <BOE/INT>
(Reporting by Yati Himatsingka; editing by Stephen Nisbet)