Hedge funds are less bullish on the dollar even as the final countdown to next week’s likely Federal Reserve interest-rate increase begins.

Large speculators’ futures wagers on a stronger dollar against a basket of eight currencies fell to net 379,040 contracts in the week through Dec. 8, from 417,129 the week before, according to Commodity Futures Trading Commission data. Their optimism toward the greenback has dimmed for two straight weeks.

Tumbling oil prices are containing inflation expectations and backing Fed officials’ signals that they’ll stick to a gradual pace of rate increases after liftoff, potentially constraining support for the U.S. currency.

"Gains in the dollar will be limited going forward given the Fed trajectory will be very slow and gradual," said Sireen Harajli, a currency strategist at Mizuho Bank Ltd. in New York.

Bloomberg’s dollar index rose about 0.2 percent this week after a 1.1 percent decline the previous week that was its steepest since October. 

Against the euro, the U.S. currency lost about 1 percent this week, to $1.0986. It’s still up 10 percent against the shared currency this year on speculation that U.S. and euro-region monetary policy would diverge with the Fed preparing to boost rates. Confidence in that trade faded this month after the European Central Bank announced stimulus measures that disappointed some investors.

Last Leg

Strategists predict the dollar rally is in its last stretch. The currency will strengthen to $1.05 per euro by the end of March before trading little changed for the rest of 2016, according to the median estimate in a Bloomberg survey.

Traders see a 72 percent probability the Fed will increase its benchmark from near zero by its meeting on Dec. 15-16, according to futures data compiled by Bloomberg. The calculation is based on the assumption the effective federal funds rate will average 0.375 percent after liftoff, compared with the current range of zero to 0.25 percent.

Oil sank to the lowest since 2008 this week amid estimates that OPEC’s decision to scrap production limits will fuel a supply glut.

The drop will "definitely have implications on the inflation outlook -- it’ll take longer for the Fed to reach its inflation target," Harajli said.