Citi: Dollar Will Only Peak When World Slowdown Is Over

The dollar could continue rallying until the end of the global economic slowdown and growth starts to accelerate again, according to Citigroup Global Markets Inc.

Until this happens, the dollar is the now obvious safest haven, as it offers a yield premium over its global rivals and peers. “What we think is needed for a dollar top is a bottom in global growth,” the strategists said adding that “there needs to be a narrative shift in order to change the trajectory of the dollar”.

One major question in the market now is when the current surge in the world’s reserve currency will end. The Dollar Index climbed more than 18% this year, heading for a record annual gain since 1972.

Dollar strength was a major topic at gatherings of finance chiefs and central bankers in Washington this week as the soaring dollar adds to economic challenges facing governments after US Treasury Secretary Janet Yellen said, this week, the dollar’s strength is the “logical outcome” of different global monetary policy stances.

A decision by Fed to slow rate hikes cannot convince investors to sell the dollar, according to Citigroup. An improvement in the global growth expectations is key as this has been the main driver of the dollar’s past reversals, particularly in the last two decades.