1 hour ago
15
Citigroup Research just told its clients to brace for a weaker greenback. The bank’s midyear 2026 outlook, published on July 15, projects the US dollar losing ground over the next 12 months as the Federal Reserve shifts gears from inflation hawk to rate cutter.
The call is straightforward: the DXY index, which measures the dollar against a basket of major currencies, is expected to slide from 101.82 in Q3 2026 to 99.96 by Q3 2027. That would put the world’s reserve currency below the psychologically important 100 level for the first time in this cycle.
What’s driving the bearish call
Three forces are converging to push the dollar lower, according to Citi’s analysis.
First, the Fed is expected to cut rates. Citi projects the Fed Funds rate landing at 3.25% by the end of 2026. The bank recently pushed back its expected timeline for the first cut from September to October 2026, but the direction of travel hasn’t changed.
Second, US midterm elections are approaching. Political uncertainty tends to weigh on the dollar as investors hedge against potential policy volatility.
Third, the US Treasury is ramping up debt buybacks. When the Treasury buys back its own bonds, it effectively injects liquidity into the system while reshaping the maturity profile of outstanding debt.
On the euro side, Citi expects EUR/USD to climb toward 1.14, reflecting relative strength in the common currency as the dollar softens.
Why currency traders are paying attention
The projected DXY decline from 101.82 to 99.96 represents roughly a 1.8% drop. If the Fed does cut to 3.25%, US Treasury yields will likely fall in tandem, creating a problem for the pool of global capital that has been parked in dollar assets specifically because they offered better returns than alternatives.
By pushing the expected first cut to October rather than September, Citi is signaling that the Fed won’t rush into easing, suggesting the path lower for rates could be gradual rather than dramatic.
The broader macro picture
A weaker dollar has wide-ranging consequences beyond forex trading desks. US multinationals tend to benefit because their overseas revenues translate into more dollars. Commodity prices, which are typically denominated in dollars, tend to rise when the greenback falls. Emerging market economies that borrowed heavily in dollars get some breathing room on their debt payments.
The flip side is that a softer dollar can complicate the Fed’s inflation fight. Imports become more expensive, which feeds through to consumer prices. If the dollar weakens too quickly, it could force the Fed to slow or pause its cutting cycle, keeping rates higher for longer than Citi currently expects.
Disclosure: This article was edited by Editorial Team. For more information on how we create and review content, see our Editorial Policy.
English (US) ·