Citi lowers short-term outlook for the US dollar, warning that US Treasury repos and political risks will put pressure on the exchange rate

The team of currency strategists at Citigroup has recently turned pessimistic about the short-term outlook for the US dollar, slashing their three-month forecast for the US Dollar Index from 102.12 to 98.34. In a research report published on Thursday, strategist Daniel Tobon pointed out that the US Treasury plans to double the amount of 10- to 30-year Treasury buybacks in November. This move is expected to lower long-term yields and spark market concerns about “financial repression,” creating new downward pressure on the dollar. Previously, US Treasury Secretary Bessent’s latest initiative to reduce long-term borrowing costs had already attracted market attention. Citigroup warned that efforts to cap yields could put pressure on the dollar, with the Dollar Index at one point dropping to its lowest level since May. However, Citigroup has not changed its long-term view of the dollar, maintaining that the US economic growth outlook remains better than that of other G10 member countries. In addition, potential risk factors for the dollar’s future performance include US-Iran tensions (such as reduced oil flow through the Strait of Hormuz) and inflation concerns driven by large-scale capital expenditures related to artificial intelligence. Regarding major non-US currencies, Citigroup raised its short-term expectations for the euro. Based on expectations that the European Central Bank will raise rates by 25 basis points in September, and market expectations for US Federal Reserve hikes have weakened, Citigroup raised its three-month forecast for EUR/USD to 1.1750. As of noon New York time on Thursday, the pair was trading near 1.17, with relatively stable performance.