Citigroup predicts that the US dollar may further decline after the G7 summit as global leaders discuss monetary policy in trade negotiations with the US.
Citigroup stated that the dollar may further decline after this week's G7 meeting as global leaders discuss exchange rates as part of trade negotiations with the US.
In a report led by Osamu Takashima, a monetary strategist at the Bank of Japan, it was written that Washington is unlikely to "actively pursue" a weaker dollar, but the dollar will ultimately depreciate as the US reaches agreements with trade partners to lower tariffs.
Ahead of the G7 meeting starting on Tuesday, exchange rate policy has become a focal point. Earlier, officials from South Korea and Taiwan hinted that they had discussed this issue with the US.
Citigroup strategists wrote, "We suspect that currency appreciation may be requested as part of the tariff reduction negotiations," and added that Japan and China, as well as other East Asian countries, may become targets. "We suspect that the monetary policy of the Bank of Japan is being discussed behind the scenes in US-Japan trade negotiations."
Citigroup expects that Bessent will not seek a comprehensive agreement to suppress the dollar similar to the 1985 Plaza Accord, but will emphasize the central banks' role in exchange rate issues.
"We do believe that the risk of dollar depreciation is rising," the strategists stated. "As high tariffs are lifted, the impetus for the US to maintain a strong dollar policy will diminish," they added.
Since the US announced high tariffs in early April, which led to turbulence in global markets, the Bloomberg dollar spot index has fallen by 4%. Thereafter, the chaotic implementation process and uncertainty regarding the persistence of tariffs raised doubts about US policy, undermining confidence in the dollar and other US assets.
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