Citi expressed a perspective that anticipates a further weakening of the US dollar in the near term, despite maintaining a bullish stance on the currency for the next one to two months. The brokerage firm highlighted that this outlook does not favor a broad strengthening of the dollar as the current market conditions suggest that safe-haven currencies, such as the Japanese yen, may outperform, albeit with unattractive risk/reward for long positions in the yen.
Citi’s analysis suggests that high beta foreign exchange currencies are likely to experience more significant declines against the dollar in the upcoming weeks. The firm’s commentary indicates a cautious stance on the euro, suggesting that the backdrop is not favorable for the European currency. According to Citi, the global manufacturing slowdown is expected to have a more pronounced impact on regions outside the United States.
The commentary from Citi also touches on the European Central Bank’s (ECB) monetary policy, which is driven by a single mandate focus. Citi believes that this approach may cause the ECB to lag in its response to economic conditions. However, the firm also notes emerging signs that the ECB is showing greater concern regarding growth, which could have implications for the currency market.
Citi’s outlook on the US dollar and other currencies comes amid a complex global economic environment, where central banks are navigating between inflationary pressures and the need to support growth. The firm’s view suggests that investors may need to brace for continued volatility and dispersion in the performance of different currencies.
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