Citigroup Inc (NYSE:C). is bullish on the dollar. U.S. President Donald Trump could change that.
The administration’s preference for a weaker greenback, combined with its unpredictable policy moves, pose a key risk for foreign exchange markets, according to Calvin Tse, North American head of G-10 FX strategy at Citigroup in New York. Even though the chances are slim, investors can’t ignore the possibility that the Treasury may intervene by selling dollars, Tse said.
“We remain structurally bullish,” as strong growth and relative yields attract capital to the U.S., Tse said in an email. “The biggest risk to our view, however, is that the Treasury decides to intervene to weaken the USD. Though still a tail risk, if they were able to corral the Fed to participate, this would be a game changer for the USD outlook.”
While some traders and analysts consider the chances of U.S. intervention remote, the possibility appears less far-fetched than it once was because of the Trump administration’s pronouncements and unorthodox policy. The U.S. hasn’t intervened in markets to sell the greenback since 2000, when it united with fellow members of the Group of Seven in an effort to boost the sliding euro.
In terms of firepower, Tse calculates the Treasury and Fed would have a combined $189 billion to step into the market. He says such an move could trigger double-digit percentage losses for the greenback in a matter of months, eroding the currency’s position as a global reserve asset.
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