Citigroup has expressed a view that the US dollar is likely to weaken further in the near term, although it maintains a bullish stance on the currency for the next month or two. The brokerage stressed that this outlook is not in favour of a broad-based strengthening of the dollar as current market conditions suggest that safe haven currencies, such as the Japanese yen, could outperform, albeit with an unattractive risk/reward profile for long yen positions.
Citi’s analysis suggests that high-beta foreign currencies are likely to see more significant declines against the dollar in the coming weeks. The firm’s comments point to a dovish 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.
Citi’s commentary also touched on the ECB’s monetary policy, which is based on a single mandate. Citi believes that this approach could cause the ECB to be late in responding to economic conditions. However, the firm also notes emerging signs that the ECB is showing greater concern about growth, which could have implications for the currency market.
Citi’s outlook for the US dollar and other currencies comes amid a complex global economic environment, with central banks navigating inflationary pressures and the need to support growth. The firm’s view suggests that investors may need to prepare for continued volatility and dispersion in the performance of different currencies.
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