By Rahul Karunakar
(Reuters) - The U.S. dollar will strengthen over the coming year, despite fading chances of the Federal Reserve raising interest rates, on worries Britain's vote to leave the European Union might lead to a wider slowdown in trade and investment, a Reuters poll showed.
Brexit has increased the chances for more policy easing from major central banks to prevent another global downturn, the same force that may thwart the Fed from raising rates this year.
Britain's shock vote on June 23 led to a deep global market sell-off, sending sterling to a 31-year low, with funds pouring into safe-haven gold, other currencies - the dollar, yen and the Swiss franc - and government bonds.
Positioning numbers are telling a similar tale to the latest Reuters poll of 70 foreign exchange strategists, showing speculators have increased their bets in favor of the dollar at the expense of the euro and sterling.
"The consequences of the Brexit referendum are keeping the currency market on tenterhooks. Post-Brexit vote uncertainty is also casting its shadow over the Fed outlook," wrote Ulrich Leuchtmann, head of FX research at Commerzbank.
"Financial markets have now priced out Fed interest hikes in the foreseeable future, which is currently offset in exchange rates by increased safe-haven USD demand."
The euro <EUR=> is forecast to trade around the $1.10 in a month from Tuesday's $1.11, weaken to $1.08 in three months and then a bit further to $1.07 in a year.
Those expectations are the weakest since March and even the number of analysts expecting the single currency to weaken has increased compared with previous months, suggesting more easing to come from the European Central Bank.
Even the Bank of Japan is expected to expand its monetary easing as the yen has surged almost 15 percent against the dollar this year.
The yen's traditional status as a safe haven when markets are in turmoil means if the broad global markets sell-off continues, it could easily strengthen.
Still, FX analysts are clinging on to their weaker yen outlook, mostly on account of a stronger dollar view, despite a blistering rally in the yen this year.
Trading at 101.9 on Tuesday, the yen is forecast in the poll to weaken to 103.0 in three months, 105.0 in six months and drop to 108.0 in a year.
Those predictions are slightly stronger compared to those from a month ago and there are more analysts in the latest poll forecasting the yen to strengthen to below the 100 per dollar mark over the coming year.
Meanwhile the outlook for UK interest rates and the pound has turned completely on Britons' vote to leave the EU, with a rate cut now on the cards latest by September.
Sterling is expected to slide further to $1.27 by year-end from the current $1.31 on Tuesday. Forecasts were also in wide range of $1.07-$1.57 in 12 months, underscoring the risks emanating from Brexit.
Still, a majority, 49 of 54 analysts, do not expect Brexit to turn into another full-blown financial market crisis.
"Is certainly a lot more likely," said Kristian Foged Schmidt, currency analyst at Jyske Bank.
"Brexit is a 'step 1'. Further steps towards crisis are no way certain, but the further we go down the stairs, the more likely a larger crisis gets. For now this is not a main scenario, but only a risk scenario that has become much more likely."
(Analysis by Shrutee Sarkar and Kailash Bathija; Polling by Sarmista Sen and Vartika Sahu Editing by Jeremy Gaunt)