US Dollar Index to decline over the next months – CitiBank

Analysts at Citibank forecast the US Dollar Index (DXY) will trade at 98.84 over the next three months and at 95.41 on a six to twelve months period. 

Key Quotes:

“The large levels of USD liquidity injections has stalled the upward momentum in the currency, at a time where the bullish factors for the Greenback were already eroding. Fed Fund cuts back to the ZLB has compressed previously wide yield spreads between the US and the RoW.”

“Relative excess reserves were already becoming a factor that weighed on the USD, as Fed balance sheet expansion relative to the ECB and definitely the BoJ was occurring at a much quicker pace. Recently released IMF data suggest that reserve managers continue to diversify away from USD holdings.”

“The US administration and Fed are also now effectively synchronised on their USD policy. As witnessed in March, this likely caps any material USD spikes.”

“Note that the spread between economic data for the US vs. the other G10 economies turned negative recently. Historically this has been decent USD negative signal.”