Deutsche and Standard warned of a weak month for the dollar. Citi disagrees with them

Analysts at Deutsche Bank and Standard Bank have warned of a possible "triple blow" to the dollar in the coming weeks, which could exacerbate an already seasonally weak period for the U.S. currency. However, Citigroup strategists, on the contrary, advise investors in emerging markets to prepare for dollar strengthening: negative trends for the currency have receded in the middle of 2025, they believe.

According to Standard Bank, the dollar may suffer due to three factors, reports Bloomberg. The first is a possible decision of the U.S. Supreme Court to recognize illegal import duties imposed by President Donald Trump. The second is Trump's likely choice of National Economic Council head Kevin Hassett as the next Fed chairman. The third is the likelihood of a sharp strengthening of the Japanese yen in case the country raises interest rates in December.

"A rate hike [in Japan], combined with an unfavorable decision on duties and Hassett's appointment as Fed chief, could well be the triple whammy that knocks the dollar out of balance. If not in the remaining weeks of this year, then certainly in early 2026," said Stephen Barrow, G10 currency strategist at Standard Bank, in a note quoted by Bloomberg.

Rate hikes in Japan have historically led to a sharp strengthening of the yen, especially against the dollar, Standard Bank and Deutsche Bank explained. And Hassett is widely known as a proponent of aggressive rate cuts. "The market is signaling that an even looser Fed policy is possible under a Hassett presidency," Wang Lu, global head of currency strategy at Russell Investments, told the agency. He said this could weaken the dollar more than the current four-year low against the euro - around $1.19.

Deutsche Bank is also pessimistic about the dollar's prospects at the end of the year because of the risk of monetary tightening in Japan, but also because of the publication of strong economic data in other countries, Bloomberg writes. In the past decade, December has usually "been the worst month for the dollar," Deutsche Bank macro strategist Tim Baker told Bloomberg. Traders often sell off the dollar to balance gains from other U.S. assets accumulated over the year, he said. The recent wave of dollar buying could turn into a downturn this month, Baker warned.

"We believe the dollar could pull back to third-quarter lows - about 2% below current levels," the analyst wrote.

Citi strategists led by Luis Costa have diametrically opposed views on the prospects of the dollar, reports Bloomberg. According to Citi, the trends that contributed to the weakening of the dollar began to weaken in the middle of the year. The focus of investors has shifted to the boom in artificial intelligence and the lack of convincing signs of a global trade slowdown after the increase in duties in the U.S., the agency writes.

"These two key factors have combined to ensure the gradual return of the theme of U.S. exceptionalism, which has ultimately reshaped dollar dynamics once again," Citi analysts wrote Tuesday. - Barring a major revaluation of U.S. equities, global markets are likely to remain in this mode, which essentially means a more resilient dollar."

The bank estimates that the U.S. economy is poised for a recovery in 2026 thanks to a pickup in consumer spending, "unless global interest in AI dries up." "We continue to believe it is unlikely that the global macroeconomic picture will allow for a repeat of the same growth rates for emerging market currencies that were seen in the first half of 2025," Costa said.

This article was AI-translated and verified by a human editor