'Safest Bet'
"I think the safest bet is to stay long the dollar against the yen," said Nick Bennenbroek, head of currency strategy at Wells Fargo in New York, the third-most accurate forecaster. "As soon as the market starts to see a shift in interest-rate futures, that would be enough for the dollar to move higher. We expect this to happen by the end of the fourth quarter."
While the Fed repeated after last month's meeting that it will keep its key rate at a record low for an "extended period," the U.S. currency may find support from the June end of the central bank's asset-purchase program, or quantitative easing, known as QE2, which helped depress bond yields this year.
"We don't have a scenario where the U.S. economy weakens a lot further or in a prolonged sense such that the Fed then undertakes another round of quantitative easing," said John Kyriakopoulos, head of currency strategy at National Australia Bank Ltd. in Sydney, the No. 6 forecaster. "We don't see a further large fall in the U.S. dollar."
'Positive Dollar Impact'
The dollar appreciated on June 22 after Fed Chairman Ben S. Bernanke ruled out a third round of asset purchases.
"As U.S. bond yields begin to gradually drift upwards in anticipation of policy normalization from the Fed, a lot of the liquidity that has drained out of the U.S. is going to flow back again," said Daragh Maher, deputy head of global foreign- exchange strategy at Credit Agricole Corporate & Investment Bank in London, which had a margin of error of 5.65 percent. "That's going to have some positive dollar impact."
Currency forecasters were ranked according to the accuracy of their estimates for the six quarters beginning with the first three months of 2010. Long-term accuracy was judged by a forecast for the twelve-months to end-June 2011.
Only firms with at least four forecasts for a particular currency pair were ranked, and only those that qualified in at least five of eight pairs were included in the ranking of best overall predictors. In all, 50 firms submitted enough forecasts to be ranked in at least one currency.