Citi Lowers Dollar Forecast: Fed's Dovish Expectations and Treasury Buybacks Pressure the Dollar

Foreign exchange strategists at Citigroup have turned bearish on the short-term outlook for the U.S. dollar, citing market preparations for a more dovish Federal Reserve, the U.S. midterm elections, and the Treasury Department's further expansion of bond buyback programs. Led by Daniel Tobon, Citi's strategist team stated that they have revised their 3-month forecast for the U.S. Dollar Index from 102.12 down to 98.34. Citi previously noted that U.S. Treasury Secretary Janet Yellen's recent move to expand buybacks of 10- to 30-year U.S. Treasury bonds to lower long-term borrowing costs could come at a cost to the dollar. After the Dollar Index fell to its lowest level since May on Wednesday, it remained relatively stable near 98.9 on Thursday. The Citi team mentioned that their view on the dollar has been "relatively neutral" in recent months but warned that risks facing the dollar could increase in the coming months.