US Dollar Will Remain on the Rise, Citi Traders Say

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According to Citi traders, there is no end in sight for the US dollar’s rise and currency pain.

During Citi’s annual Australian investment conference on Wednesday, traders argued about the recent dollar index showing how the greenback hit its highest levels against a basket of other major currencies.

It’s contrary to US Treasury Secretary Janet Yellen’s previous remarks during the IMF and Worldbank Group’s annual meeting on October 12.

“She’s factually wrong, but that doesn’t mean it [the US dollar] doesn’t go higher,” Cameron Small, Citi’s global head of macro sales, opposed. 

This strong dollar trend is causing pain for many currencies, putting pressure on emerging market economies, as they often have high levels of debt denominated in dollars. This could lead to defaults and economic turmoil in these countries.

“Our economy remains resilient in the face of global economic headwinds,” Yellen said.

“We are highly attuned to the risks on the horizon,” Yellen added. “Many other major economies are facing high inflation as well. They must also continue implementing policies to rein that in.”

The rise in the US dollar is exceptionally positively correlated with movements in the US Federal Reserve’s balance sheet, according to Mohammed Apabhai, Citi’s Asia Pacific head of trading strategy.

Unfortunately, there does not appear to be an end in sight for this trend. The US dollar is expected to remain the preferred safe-haven currency. With rising interest rates and a potential infrastructure spending boom on the horizon, the dollar is likely to continue its strength.

In addition, commodity-exporting nations such as Australia also feel the impact of a strong dollar as their exports become less competitive.

This means that those relying on exports and foreign currency may need to find ways to adjust and mitigate the effects of a strong dollar.

There is a good chance that the current trends in the foreign exchange markets will continue, resulting in even more dramatic falls in the value of the euro, the British pound, and the Japanese yen. This could have severe consequences for economies around the world that are reliant on exports.

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