Citigroup Inc.'s currency strategists, led by Daniel Tobon, have turned bearish on the US dollar in the near term, as of August 20, 2026. This shift is attributed to market expectations for a less hawkish Federal Reserve, upcoming midterm elections, and increased debt buybacks by the US Treasury.
The team lowered its three-month forecast for the US Dollar Index from 102.12 to 98.34. This move follows the Treasury's decision to double the size of buybacks for 10 to 30-year securities through November, which Citi believes will add further bearish pressure on the dollar by pushing US yields lower and raising concerns about financial repression. The dollar index traded near 98.9 on Thursday, having fallen to its lowest level since May a day prior.
While Citi had maintained a more neutral stance on the dollar in recent months, they now foresee increased risks approaching the end of the year. Traders have also reduced expectations for further Fed rate hikes, which previously supported the dollar. Additionally, strategists suggest investors might avoid large long dollar positions ahead of the November midterm elections due to heightened political uncertainty.
However, Citi's longer-term dollar outlook remains unchanged, primarily due to stronger expected US economic growth compared to other Group of 10 economies. Potential risks to their near-term bearish view include the US-Iran conflict and continued AI-related capital spending. Such factors, if they lead to higher oil prices or inflation, could increase the likelihood of renewed Fed tightening. Citi also raised its three-month EUR/USD forecast to 1.1750, anticipating a quarter-point European Central Bank rate increase in September coupled with reduced expectations for a Fed hike, with EUR/USD trading near 1.17 on Thursday.
