Citi Downplays Expectations for Further Dollar Gains

Citi's analysts have downplayed expectations for further US dollar gains in the wake of the Federal Reserve's latest interest rate decision. According to a recent report from Citi, the Fed's move to keep rates unchanged, coupled with Chair Kevin Warsh's dovish tone during the press conference, has reduced the risk of additional rate hikes.

Although three Fed officials dissented in favor of an immediate rate increase, Citi believes that investors focused on Warsh's comments, which suggested that higher interest rates might be a dominant but not the only solution to higher inflation. This shift in communication has led to a reevaluation of the path for US interest rates.

Citi notes that the curve has steepened significantly as markets have priced out September and October rate hikes. The bank believes that Warsh's ideal scenario is one where he keeps the Fed on hold while allowing tighter financial conditions to do some of the work in addressing inflation.