Citigroup strategists turned bearish on the dollar, cutting their three-month US Dollar Index forecast to 98.34 from 102.12. The shift follows the Treasury's plan to double buybacks of 10- to 30-year securities and fading expectations for another Federal Reserve rate hike.
Citigroup strategists turned bearish on the dollar, cutting their three-month US Dollar Index forecast to 98.34 from 102.12.
The Treasury's decision to double buybacks of 10- to 30-year securities through November adds another bearish factor for the currency, strategists led by Daniel Tobon wrote in a Thursday research note. Larger buybacks could pressure the dollar by pushing US yields lower and stoking concerns about financial repression, they said.
The dollar index traded near 98.8 in Asian hours Friday after sliding to its weakest since May a day earlier. Citi also raised its three-month euro forecast to 1.1750, citing expectations for a quarter-point European Central Bank rate increase in September alongside reduced bets on another Fed hike. The euro traded near 1.17.
Treasury Secretary Scott Bessent's move to at least double the maximum size of buyback operations to $4 billion per transaction, effective Sept. 9, came after the 30-year yield climbed above 5.3 percent, its highest since 2007. The 10-year yield fell 5.7 basis points to 4.647 percent after the announcement, while the 30-year yield dropped close to 10 basis points to around 5.19 percent. The program, launched in May 2024 with a $2 billion cap per operation, lets the government repurchase older off-the-run securities to improve secondary-market liquidity.
Citi had held a more neutral stance on the dollar in recent months but said risks are likely to build into year-end. Traders have pared expectations for another Fed rate increase, reversing part of the support that had underpinned the currency, while investors may avoid large long-dollar positions before November's midterm elections because of political uncertainty and the possibility of election-related disputes.
The bank left its longer-term dollar outlook unchanged, citing stronger expected US growth than other Group of 10 economies. It flagged the US-Iran conflict and continued AI-related capital spending as risks to its near-term bearish view, since higher oil prices or investment-driven inflation could revive the case for Fed tightening.
The forecast cut signals Citi sees the dollar's near-term path skewed lower as the Treasury's liquidity push and a less hawkish Fed converge. Investors will watch the September buyback operations and the next quarterly refunding announcement on Nov. 4 for guidance on the program's future size.
This article is for informational purposes only and does not constitute investment advice.
