According to a recent Reuters poll, traders are likely to hesitate from making too many moves in the US dollar until further clarity about the Fed’s outlook towards monetary policy emerges. While the greenback has strengthened by more than 2% so far this year, respondents expect it to give back these gains over the coming year.

In all likelihood, strategists forecast range-bound trading in the US dollar till the Fed offers a specific timeline by when it could start tapering its monetary stimulus efforts and consider rate hikes again. Similarly, updates on fiscal stimulus will also be closely monitored before investors drive too much volatility in the currency as well as in the overall forex market as well.

While the Fed sounded quite hawkish in its June meeting, policymakers played down these tones in the most recent meeting held in July. After June’s FOMC, the greenback had started trading bullishly over rising expectations that the Fed could be the first among the leading central banks to start tightening monetary policy as the US economy posts rapid recovery.

However, the rampant spread of fresh COVID-19 infections due to the delta variant raised concerns again, threatening to derail the progress the economy has made. In addition, the labor market in the US remains under considerable strain despite the nation having one of the fastest COVID-19 vaccine rollout programs, heightening worries that the Fed could wait longer to turn hawkish.

This has raised uncertainty in forecasting future moves in the reserve currency, with over 60% of FX strategists indicating little to no confidence in their earlier prediction for further weakness in the USD within the next 12 months. Meanwhile, more than 55% of respondents expect forex markets to experience higher levels of volatility over the coming three months, possibly as the pace of economic recovery becomes clearer and central banks turn more confident about their future outlook.