Citi Turns Bearish on US Dollar Amid Fed, Treasury Moves

Citi Turns Bearish on US Dollar Forecast

Citi Group's foreign exchange strategy team has adopted a short-term bearish outlook on the US dollar. This shift is attributed to market expectations of a more dovish Federal Reserve, upcoming midterm elections, and increased US Treasury bond repurchases. Led by Daniel Tobon, Citi strategists lowered their three-month US Dollar Index forecast from 102.12 to 98.34, a notable change from their previous neutral stance.

Drivers: Treasury Buybacks and Fed Policy

The revision follows warnings that the US Treasury's expansion of 10-to-30-year bond repurchases to lower borrowing costs could weaken the dollar, which recently hit a five-month low. The Treasury’s plan to double repurchase volume by November is seen as a bearish factor, potentially lowering bond yields and sparking financial repression concerns. Traders have also reduced Federal Reserve rate hike expectations, further weighing on dollar sentiment.

Summary

A confluence of dovish Fed expectations, increased Treasury bond repurchases, and political uncertainty drives Citi's short-term bearish view. While long-term dollar fundamentals remain strong, immediate market sentiment is negative.

FAQ

Q: Why is Citi Group turning bearish on the US dollar?

A: Citi cites a more dovish Federal Reserve, increased US Treasury bond repurchases, and US midterm election uncertainty as key factors for its short-term bearish outlook.

Q: What is Citi's new US Dollar Index forecast?

A: Citi has lowered its three-month US Dollar Index forecast from 102.12 to 98.34.

Source: Investing.com China