Citi has expressed an outlook that predicts further weakness in the US dollar in the near term, despite maintaining a bullish stance on the currency for the next month or two. The brokerage firm stressed that this outlook does not support broad-based dollar strengthening, as current market conditions suggest safe-haven currencies like the Japanese yen could outperform, albeit with unattractive risk/reward for long yen positions.
Citi’s analysis suggests that high-beta currencies are likely to see bigger declines against the dollar in the coming weeks. The firm’s commentary points to a cautious approach to the euro, suggesting the backdrop is not favorable for the European currency. The global manufacturing slowdown is expected to have a more pronounced impact on regions outside the United States, Citi said.
Citi’s commentary also touches on the European Central Bank’s (ECB) monetary policy, which is being driven by a single mandate focus. Citi believes this approach could cause the ECB to lag in responding to economic conditions. However, the firm also notes emerging signs that the ECB is showing greater concerns about growth, which could have an impact on the currency market.
Citi’s outlook for the U.S. dollar and other currencies comes amid a complicated global economic environment, with central banks balancing inflationary pressures with the need to support growth. The firm’s view suggests investors may need to brace for continued volatility and dispersion in the performance of different currencies.
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