On Monday, Citi issued a note in which it highlighted the potential for a strengthening US dollar, citing several factors that could impact the currency’s performance.

According to the firm, the index (DXY), which measures the value of the US currency against a basket of other major currencies, has reached essential support levels in the 100.30-100.82 range.

This situation presents, in Citi’s view, an attractive risk-reward scenario for investors considering taking long dollar positions.

The bank’s analysis points to weakening economic data from the European Union and political developments in the U.S., including the upcoming election, as factors that could tip the scales in favor of a stronger U.S. dollar.

Moreover, historical data indicates that September is typically a month in which the dollar performs well, with positive returns seen during this period in eight of the last ten years.

The Citi report also notes that risk aversion is driving investors to the protected haven of the U.S. dollar. This is especially true when stocks and other risk assets are underperforming, as is common during the time frame discussed.

Moreover, the relative performance of the United States and other global economies, such as data momentum and the two-year spread in US and G6 Treasury yields, supports the dollar, albeit to a lesser extent.

The upcoming US election is expected to escalate market volatility, which Citi believes could be positive for the US dollar. They predict this volatility will limit the growth potential of risk assets.

However, they also recognize that the Federal Reserve’s dovish stance could offset some of the upward pressure on the dollar.

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