On Monday, Citi published a note highlighting the potential for a strengthening of the U.S. dollar, citing several factors that could play a role in the currency’s performance.
According to the company, the (DXY), which measures the US currency against a basket of other major currencies, has reached significant support levels between 100.30 and 100.82.
This positioning presents what Citi views as an attractive risk/reward scenario for investors considering long positions in the dollar.
The bank’s analysis points to weakening economic data from the European Union and developments in the US political landscape, including the upcoming elections, as elements that could lead to a stronger US dollar.
Furthermore, historical data suggests that September is a month when the dollar tends to perform well, with positive returns observed during this period in eight of the past ten years.
Citi’s report also notes that risk aversion tends to drive investors to the safe havens of the US dollar. This is especially relevant when stocks and other risky assets underperform, which is common in the time frame we’re discussing.
Moreover, relative performance between the United States and other global economies, such as data momentum and two-year interest rate differentials between the US and G6 countries, support the dollar, albeit to a lesser extent.
The looming US election is expected to increase market volatility, which could support the US dollar, according to Citi. They expect this volatility to limit the upside potential for risky assets.
However, they also acknowledge that a dovish stance from the Federal Reserve could offset some of the upward pressure on the dollar.
This article was produced with the support of AI and reviewed by an editor. For more information see our General Terms and Conditions.
