Citi expressed its view that it expects further weakness in the US dollar in the near term, although it maintains an optimistic stance on the currency for the next one to two months. The brokerage firm pointed out that current market conditions do not support a broad strengthening of the dollar as hedge currencies, such as the Japanese yen, are likely to outperform, albeit with an unattractive risk/reward ratio for long positions in the yen.
Citi's analysis shows that the major forex currencies are likely to experience more significant declines than in the coming weeks. The firm's comments reflected caution towards the euro, suggesting that the current economic backdrop does not support the European currency. According to Citi, the slowdown in the global manufacturing sector is expected to have a greater impact on regions outside the United States.
Citi's commentary also touches on the monetary policy of the European Central Bank (ECB), which is driven by the focus of a single mandate. Citi believes that this approach may cause the ECB to be slow to react to economic conditions. However, the firm also noted emerging signs that the ECB is showing greater concern about economic growth, which could have an impact on currency markets.
Citi's view of the US dollar and other currencies comes amid a complex global economic environment, where central banks are balancing between inflationary pressures and the need to support growth. The firm's view suggests that investors may need to prepare for continued volatility and differences in the performance of different currencies.
