Citigroup analysts dismissed the idea that global investors are seeking to reduce their exposure to the dollar, calling talk of de-dollarization a "mirage."
Citigroup analysts dismissed the idea that global investors are seeking to reduce their exposure to the dollar, calling talk of de-dollarization a "mirage" unsupported by economic data, Bloomberg reports.
The dollar has fallen nearly 9% this year, but U.S. balance of payments data doesn't support a significant selloff in dollar assets, strategists led by Osamu Takashima noted in a note to clients. They also added that there is no significant correlation between foreign portfolio inflows and long-term currency performance.
"We view de-dollarization as a narrative created to justify dollar weakness driven by position reduction and hedge ratio adjustments," the strategists wrote. "We believe this risk of dollar weakness should be considered separately from de-dollarization." Many analysts are using the term "de-dollarization" to describe investors' efforts to reduce their exposure to the US currency as Donald Trump imposes high tariffs on trading partners and threatens the independence of the Federal Reserve.
Despite these concerns, evidence shows that investors continue to buy US stocks and bonds, while simultaneously protecting their investments from further dollar declines by buying derivatives.
Strategists remain pessimistic about the dollar, forecasting a decline from approximately $1.1750 to $1.20 per euro by the end of the year. Citi also expects the US dollar to weaken against the yen by approximately 9% by the end of 2026.