Citi sees US dollar weak in near term, rebounding later in 2024

investing.com:

By Saqib Iqbal Ahmed and David Randall

NEW YORK (Reuters) — A comparatively hawkish European Central Bank is likely to keep the dollar under pressure against the euro in the near term, though the greenback could recover later in the year as chances of a U.S. recession rise, Citigroup strategists said.

«Tactically, we are a bit more constructive on the euro (vs the dollar) in terms of looking for the ECB to be a lot slower to pivot than the Fed,» Daniel Tobon, Citi's head of G10 FX strategy said on Wednesday in a virtual panel discussion as part of Citi’s Year Ahead Conference 2024.

«We do think, though, that ultimately the dollar can strengthen a bit later on in the year given our economists call for a U.S. recession and ultimately an ECB pivot,» Tobon said.

Euro zone inflation jumped as expected last month, supporting the European Central Bank's case to keep interest rates at record highs for some time, even as cooling U.S. inflation is widely expected to allow the Federal Reserve room to start cutting interest rates later this year.

The Fed last month projected it could cut rates by as much as 75 basis points in 2024 from their current range of 5.25% to 5.50%, with futures tied to the Fed's policy rate showing investors factoring in nearly twice that amount.

Consumer price data on Thursday is expected to show whether prices are continuing a cooling trend that began last year, potentially setting the stage for easier monetary policy.

The euro has advanced nearly 5% against the dollar since early October with investors aggressively pulling forward market bets for U.S. interest rate cuts.

Most market participants in a recent Reuters poll of strategists said the dollar will slip against major currencies in 12 months,