Danske Bank Research remains positive on the outlook for the dollar.
“We anticipate the potential for a dollar rally in 1Q, given the ongoing trend of scaling back rate cut expectations among G10 central banks, which could lead to general risk-off sentiment in markets.”
The dollar has had a strong start to the year, emerging as the best performer in the G10 space, and negative economic data surprises outside the U.S., such as the recent weak data from China, could act as potential catalysts for a dollar rally, it said.
Danske forecast EUR/USD at around 1.05 on a 12-month horizon.
The euro rose to a one-week high against the dollar, helped by improved risk appetite on reports that China is considering a large stimulus package to support struggling stock markets, ING said.
Whether the euro’s gains continue will depend on whether equities continue to rise, it said.
“The direction of travel today for the pair will mostly be a consequence of whether Western stock indices will be able to keep the positive mood shown by Asian equities and FX.”
The yen gaine against the dollar after the Bank of Japan left its policy unchanged , helped by comments from Governor Kazuo Ueda indicating that the BOJ is moving closer to raising rates, MUFG said.
However, sustained yen strengthening looks unlikely for now, MUFG added, noting that Ueda refrained from indicating the exact timing of an exit from negative rates while uncertainty remains over how widespread wage hikes will be.
“While we expect the BOJ’s exit from negative rates to encourage a stronger yen…recent price action has highlighted that it is still likely premature to expect the yen to strengthen on a more sustained basis.”