The U.S. Dollar Index (DXY) is poised for potential gains despite the volatile tariff landscape, according to Citi's latest analysis. The report highlights that ongoing tariff discussions and the U.S. administration's push for an earlier renegotiation of the USMCA could create tactical opportunities for USD strength. "We conclude that there should be upside left on long USD trades, even if not in the short term," Citi analysts assert. The analysis suggests that the market is currently pricing in around 40% of the risk of broad 10% tariffs, leaving room for further USD appreciation.
Citi also notes that the tariff risks for Canada and Mexico remain significant, with potential aggressive tariffs on the horizon. "We still see risks to tariffs on Mexico and Canada when trade talks begin," the report states, emphasizing the tactical nature of any relief for CAD and MXN. The uncertainty surrounding tariff implementation and the potential for early USMCA renegotiation are expected to keep the DXY supported, as market participants navigate the complex geopolitical landscape.