Expectations indicate that the US dollar may witness a temporary decline in December, as a series of central bank meetings around the world begin. According to Citibank analysts, markets may witness significant changes in the monetary policies of major banks. Nine out of ten central banks within the Group of Ten will meet in the next few weeks, which is of interest to traders and investors around the world.
Five central banks, including the US Federal Reserve, the European Central Bank, the Bank of Japan, the Bank of Canada, and the Swiss National Bank, are expected to adjust interest rates. Traders consider these meetings crucial because they will set the direction of monetary policies for the coming period, directly impacting financial markets, especially the US dollar.
At the moment, expectations are in line with the Federal Reserve’s more hawkish policy. Other banks such as the European Central Bank, the Bank of Japan, the Bank of Canada, and the Swiss National Bank are adopting similar positions. This means that there is pressure on the US dollar due to the tightening monetary policies in many countries. However, the Citibank Forex Strategy Team believes that the situation may change.
US Dollar Expectations to Fall
According to analysts at Citibank, if markets reassess their expectations in line with the new policies of central banks, this could lead to a slight decline in the US dollar. Analysts expect that the expected adjustments in interest rates by these banks will have effects that may weaken the strength of the dollar in global markets.
The US dollar is likely to face some pressure with the adjustment of interest policies, especially in light of the ongoing trade and economic tensions. These factors may affect the strength of the US currency.
Economic data and its impact on market sentiment: The US dollar is in the spotlight
Financial markets expect economic data coming from the United States and Canada to play a pivotal role in shaping investor sentiment in the coming period. The US labor market report, scheduled for release on Friday, December 6, stands out as the most prominent data. Traders and investors in financial markets will pay close attention to it. This data is expected to reflect the health of the US economy and influence central banks’ decisions, including the Federal Reserve’s.
As for the European Central Bank and the Bank of Japan, Citibank analysts see less immediate risk of major surprises in currency markets. However, as these banks’ meetings approach, they expect expectations between markets and central banks to converge. This indicates the possibility of monetary measures that may affect the movement of major currencies, including the euro and the Japanese yen.
Interest in interest rates and dollar expectations
In the near term, the performance of the US dollar is likely to be more influenced by factors related to the relative interest rates between central banks. Rather than directly affecting US policy, analysts will focus more on changes in monetary policy at other banks, such as the European Central Bank and the Bank of Japan. This shift in dynamics opens up the possibility of currency fluctuations based on interest rate changes and market expectations.
Citibank expects the EUR/USD pair to face additional pressure if central bank actions align with market expectations. If this happens, the dollar will be more likely to fall against the euro. This pressure could become more evident as markets look at the broader central bank landscape in the coming weeks, increasing the impact of future economic data on currency movements.
Impact of Monetary Policies and Short-Term Decline and Expected Recovery in 2025
Central banks will likely make decisions in the coming weeks that will significantly impact the movement of financial markets. If there is a shift in monetary policy that reflects a less hawkish stance, the US dollar may see some weakness. At the same time, it will be necessary to monitor how markets react to these adjustments, especially in light of the current global economic challenges.
Based on these expectations, analysts expect the US dollar to gradually decline by the end of this year, but its strength will remain thanks to the policies of the Federal Reserve and some major central banks.
Despite the expected decline in the value of the US dollar in the short term, Citibank remains strategically optimistic about the strength of the dollar in the first half of 2025. This optimism reflects the expectations of global central banks and their expected decisions on interest rates, as well as the overall economic situation in the United States.
In this context, Citibank analysts confirmed that they intend to benefit from any potential declines in the US dollar during December 2024, as they see these declines as a good opportunity to build long-term positions in preparation for the first half of 2025.
Factors supporting Citibank’s forecast
Several key factors are expected to drive the dollar’s strong performance over the coming year. First, Citibank expects the Federal Reserve to continue its tight monetary policy, which will boost the value of the dollar compared to other currencies. The US economy is also expected to keep expanding, which will support demand for the dollar.
Furthermore, the dollar will continue to benefit from its status as the global reserve currency, and the Federal Reserve will maintain its ability to influence currency markets by adjusting interest rates.
