Investing.com — The U.S. dollar could experience a temporary pullback in December amid a wave of central bank meetings, according to Citi analysts.
Nine of the ten central banks of the G10 will meet in the next three weeks, five of which – including the Federal Reserve, the European Central Bank (ECB), the Bank of Japan (BoJ), the Bank of Canada (BoC) and the Swiss National Bank ( SNB) – expected to announce rate adjustments, Citi explains.
They emphasize that market expectations are currently in line with a more aggressive Fed and a dovish stance from the ECB, the BoJ and the SNB. However, Citi’s FX Strategy team expects a different outcome.
“If markets were to revise their prices – and central banks were to deliver – in line with our expectations, we would expect this could lead to a slightly lower USD,” the analysts said.
Data from the US and Canada will play a crucial role in shaping market sentiment, especially the labor market data due on Friday, December 6, Citi says.
For the ECB, the BoJ and the SNB, Citi sees less immediate risk of significant market surprises, but expects increasing convergence of market expectations as their meetings approach.
In the short term, the dollar’s performance could shift towards relative interest rate dynamics rather than being heavily influenced by US policy developments.
Citi points to the possibility of a squeeze if central bank actions match their forecasts, which they say “only appears more likely as we look at the broader central banking landscape in the coming weeks.”
Despite the expected short-term dip in the USD, Citi remains strategically optimistic on the dollar for the first half of 2025.
“We want to use any dollar dip in December to build long positions for the first half of 2025,” the analysts concluded, underscoring their confidence in the dollar’s broader strength heading into the new year.
