Citi Asks: Is The Dollar Appreciating Too Much?
The US Dollar has jumped 18 percent versus G10 currencies and 15 percent against the EM currencies, from the mid-2014 local lows. Since the 2011 cyclical lows, the Greenback has risen 26 percent and 31 percent, respectively.
In a report published Monday, Citi analysts noted, "On the US side, this week's FOMC outcome may give a guide as to Fed sensitivities to external factors/ the USD. But these non-US influences did reappear in the January statement and regular readers will know that we think US inflation is increasingly determined by global forces not just US ones."
The analysts added, however, that the external factors are unlikely to cause any reversal of Fed policy. "In the absence of policy reversal, USD appreciation can probably be stemmed only temporarily by official censure or by periodic positioning squeezes."
Citi's base case is that multiyear the rallies in the US dollar take it 40-50% higher versus G10 currencies and 30-35% higher in real terms versus global currencies including EM. "On both metrics there seems further to go, but the pace of the move probably does warrant a breather at some point. As such we lower our stop on our EUR/USD short to 1.0915," the analysts added.
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