The US Dollar’s Short-Term Rally May Be Over, But Citi Sees Buying Opportunities Ahead
### Overview
– The US dollar has faced challenges this week in gaining traction.
– Citi believes that while the short-term rally may be coming to an end, there are still opportunities to buy the US currency going into 2025.
### Current Status
– The Dollar Index, tracking the greenback against a basket of other currencies, is up by 0.1% to 106.917.
– It has seen an almost 3% increase this month.
### Catalysts for USD Movement
– Market expectations for ECB and Fed policies have shifted towards a more dovish ECB and a more hawkish Fed.
– Markets are pricing in 33bps of cuts for the ECB Dec. 12 meeting and 13bps of cuts for the Fed Dec. 18 meeting.
### Citi’s Analysis
– Citi believes the market’s expectations may be excessive.
– While the ECB has shown a more dovish tone, gradual cuts seem to be the focus.
– The Fed’s outlook remains uncertain with debates ranging internally.
– Citi sees a 25bps cut as a likely outcome to maintain an easing path.
### Seasonality Factor
– Historically, the Dollar Index has seen declines in December coinciding with weakening data surprises.
– This trend may support a 25bps cut by the Fed in the December meeting.
### Medium-Term Outlook
– Despite short-term uncertainties, the medium-term outlook for the USD is positive.
– US tariff policy and potential growth outperformance could bolster the greenback.
– Citi views December USD dips as an opportunity to re-engage with EUR/USD shorts.
In conclusion, while the US dollar may face challenges in the short term, Citi remains optimistic about its performance in the medium term. The shifting expectations for ECB and Fed policies, along with seasonal trends, are influencing the currency’s movements. Investors should consider buying opportunities on USD dips, keeping an eye on potential growth factors that could support the greenback in the coming months and into 2025.