U.S. election approaching, Citigroup goes against the trend and is bullish on the U.S. dollar

According to the latest information from Zhitong Finance and Economics APP, Citigroup's foreign exchange strategist insists that the US dollar will rebound before the US presidential election, despite the US dollar heading for its largest monthly decline since December last year. Considering the potential impact of Donald Trump's victory in the November election, Citigroup's foreign exchange strategy team emphasized on Thursday the possibility of the US dollar strengthening against a basket of emerging market and developed market currencies. So far, the impact of the US election has been overshadowed by expectations of the Federal Reserve starting to cut interest rates next month. With US bond yields falling, investors are motivated to withdraw cash from the US. Citigroup strategists Daniel Tobon and Luis Costa stated that the second term of the Trump administration may introduce more protectionist trade policies, which is a key reason the bank is bullish on the US dollar in the months leading up to the election. For example, increasing tariffs can reduce imports, thereby reducing the outflow of the US dollar in the global market. The strategists wrote: "The US election is entering a period that can finally be traded." "We believe that shorting the Euro/USD is the clearest election trade among the G10." Citigroup strategists are bullish on the US dollar and bearish on the Euro ahead of the US election. Strategists stated that in Europe, US protectionist policies may shake the German manufacturing sector and drive anti-inflation. Tobon and his team stated: "The market is forward-looking, and we expect that any US dollar strength after the election will be digested before the election, and we may see a peak in the US dollar in November." Earlier this summer, there was strong interest in the so-called "Trump trade" - traders believed that the second term of the Trump administration would lead to inflation, hence betting on rising bond yields and a stronger US dollar. However, in recent weeks, with US Vice President Kamala Harris shaking up the election landscape, Trump's advantage in opinion polls has been erased, weakening the Trump trade. Meanwhile, the Bloomberg Dollar Index fell by about 1.7% in August, possibly the worst performing month this year, as traders prepare for a shift in Federal Reserve policy. Citigroup strategists warned that the economy may play a dominant role in determining the direction of the US dollar. Citigroup strategists wrote: "The dovish stance of the Federal Reserve has actually been suppressing the US dollar recently, which is contrary to our view that the US dollar will strengthen due to the election." "If repricing remains aggressive, how the US economy continues to develop may be more important than the election."