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What is the outlook for the US dollar in the short-term?

Here is their view, courtesy of eFXdata:

Citi discusses the USD outlook from the rates front and  flags a scope for a gradual rise or drift-up in US rates which may trigger a USD squeeze in the short term.

“After another rise in rates last week, we hold on to our reflation view, including further upside in risk assets over time. We think that a more gradual rise in rates is likely following last week’s sharp rise, but wouldn’t rule out continued drift-up, which could delay the renewed uptrend in risk assets a little bit longer. And we think that broader risk appetite can live with even a rise in real rates as long as it is not too large and mainly driven by good news,” Citi notes.

Additionally, a sustained rise in US real rates does have the potential to reverse our overall USD view. If nominal US yields rise quickly, this could contribute to a further dollar squeeze in the short term. However, over an investment horizon, we still hold our weaker dollar view, based on rebounding global economy, a reflationary environment, and a continued very dovish Fed,” Citi adds.

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