On the back foot even before Fed Chair Jerome Powell's comments last Friday at Jackson Hole, the greenback has lost almost 1.4% since it hit a nine-month high about two weeks ago. But it is still up around 3% for the year.
While analysts in the Aug. 30-Sept. 2 poll of nearly 60 FX strategists expected the greenback to give up most of those gains over the coming year, they were increasingly uncertain about both the short- and medium-term outlook.
"There's two important forces when we look at the direction of the dollar. The first is the global recovery and the momentum we've seen most recently and the second point is obviously the central banks' response to that," said Kerry Craig, global market strategist at JP Morgan Asset Management in Melbourne.
"Because those two forces are competing at the moment, we're relatively neutral about the direction of the U.S. dollar."
Eventual Fed tapering of its $120 billion of monthly bond purchases, which an over 75% majority of 51 analysts expected the central bank to announce in the final quarter of this year, should help U.S. Treasury yields to move higher.
"Ultimately, we think in a world where real yields will continue to rise over the coming months, it's likely to be dollar positive," said David Adams, head of FX strategy in North America at Morgan Stanley.
"We continue to be dollar bullish, particularly versus the low yielding funding currencies - that would be the Japanese yen and the euro."
Data from the U.S. Commodity Futures Trading Commission released on Aug. 27 showed speculators had once again increased their net long U.S. dollar positions.
But underscoring the prevailing uncertainty, there was no consensus among analysts who answered an additional question on how the dollar would trade over the next three months.
Although 23 of 60 strategists said they expected the currency to trade around current levels, 25 said broadly higher. The remaining 12 chose broadly lower.
While sticking to their long-held view of a weakening dollar over a 12-month horizon, analysts were turning skeptical.
Asked how confident they were in that view, 62% of strategists, 36 of 58, said they were not confident or not at all confident. Twenty-two chose confident.
With most major currencies expected to strengthen against the dollar in the next 12 months, the euro was forecast up a little over 2% for the same period. The common currency is down 3% this year.
Most emerging market currencies were also forecast to weaken or at best cling to a range over the next three to six months as U.S. stimulus withdrawal could push investors to shun the currencies coined the "fragile five" - Turkey, South Africa, Brazil, India and Indonesia - as they did in 2013. [EMRG/POLL]
"The dollar tends to weaken when we have a lot of risk appetite, pulling money into emerging markets and what we've seen recently is the Delta variant really shaking up Asian markets and that degree of uncertainty has been amplified by this tapering debate," said Jane Foley, head of FX strategy at Rabobank in London.
"It is a combination of those two factors that have seen flows being pulled back to the dollar. In order for the dollar to weaken again we would have to have a huge amount of flows going into emerging markets, and I can't see that happening imminently."
(For other stories from the September Reuters foreign exchange poll:)
(Reporting by Hari Kishan; Polling by Susobhan Sarkar and Mumal Rathore; Editing by Ross Finley and Steve Orlofsky)
By Hari Kishan