Citigroup strategists have turned bearish on the US dollar, cutting their three-month US Dollar Index forecast to 98.34 from 102.12 as the Federal Reserve leans toward a less hawkish stance. The bank also raised its three-month EUR/USD forecast to 1.1750, citing an expected European Central Bank rate increase alongside reduced odds of another Fed hike.
Citigroup strategists, led by Daniel Tobon, cut their three-month US Dollar Index forecast to 98.34 from 102.12 in a Thursday research note. The bank pointed to a less hawkish Federal Reserve, the November midterm elections and larger Treasury debt buybacks as the drivers behind the shift.
The Treasury's decision to double the size of buybacks of 10-to-30-year securities through November adds another bearish factor for the dollar, according to Citi. The strategists said the larger buybacks could pressure the currency by pushing US yields lower and raising concerns around financial repression.
Dollar index slips to a multi-month low
The dollar index traded near 98.9 Thursday after falling to its lowest level since May a day earlier. Citi had kept a more neutral stance on the dollar in recent months but said risks are likely to increase heading into the final months of the year.
Traders have also reduced expectations for another Fed rate hike, reversing part of the support that had previously strengthened the dollar. The strategists said investors may also avoid large long dollar positions ahead of the November midterm elections because of heightened political uncertainty and the possibility of election-related disputes.
Citi left its longer-term dollar outlook unchanged, citing stronger expected US growth compared with other Group of 10 economies. The bank identified the US-Iran conflict and continued AI-related capital spending as risks to its near-term bearish view, since higher oil prices or inflation driven by large investment spending could increase the likelihood of renewed Fed tightening.
EUR/USD forecast raised
Citi also raised its three-month EUR/USD forecast to 1.1750, citing expectations for a quarter-point European Central Bank rate increase in September alongside reduced expectations for another Fed hike. EUR/USD traded near 1.17 on Thursday around midday in New York.
Source: Crypto Briefing
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