Citi Sees Weaker Dollar After G-7 Meeting as US Softens Tariffs

(Bloomberg) -- Citigroup Inc. said the dollar could fall further after this week's Group-of-Seven meeting as global leaders discuss currency policies as part of their trade negotiations with the US.
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The bank's currency strategists led by Osamu Takashima wrote in a note that Washington is unlikely to 'aggressively pursue' a weak dollar, but the greenback will end up declining as the nation reaches agreements with its trading partners to lower tariffs.
Currency policy has become a focal point ahead of the G-7 meetings that start on Tuesday after South Korea and Taiwan officials suggested they have been discussing the theme with the US. Japan's Finance Minister said earlier on Tuesday he's arranging a bilateral meeting with US Treasury Secretary Scott Bessent this week to discuss topics including currency matters.
'We suspect that currency appreciation is likely to be requested as part of negotiations to lower tariffs,' Citi strategists wrote, adding that Japan and China, as well as other East Asian nations, could be targeted. 'We suspect that behind the scenes the Bank of Japan's monetary policy is being discussed in US-Japan trade negotiations.'
Rather than trying to seek a broad 1985 Plaza Accord-like deal to weaken the dollar, Citi expects Bessent to emphasize the role of central banks on currencies. He's also seen focusing on the effect that investment policies for foreign currency reserves have on US interest rates, they said.
'We do see the headline risk as biased toward US dollar depreciation,' the strategists said. 'The US would have less incentive to maintain a strong US dollar policy' as high tariffs are reversed, they added.
The Bloomberg Dollar Spot Index is down 4% since early April, when the US unveiled high tariffs and sent global markets into a tailspin. Since then, a chaotic roll-out and uncertainty about the permanence of the tariffs has raised questions about US policies, damaging sentiment on the currency and other US assets.
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