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Citi Sees Tactical USD Upside Amid Data Catalysts and Tariff Risks

The U.S. Dollar Index (DXY) is poised for potential gains as Citi analysts shift their stance from bullish to neutral following Trump's inauguration, citing a tactical trading environment shaped by policy developments and upcoming economic data. With the DXY and U.S. yields at the lower end of recent ranges, Citi highlights the value in tactical long USD trades, particularly against European currencies like the EUR, SEK, and NOK, ahead of key data releases such as the Non-Farm Payrolls (NFP) and Consumer Price Index (CPI). Citi's U.S. Economics team forecasts an above-consensus NFP of 195k, compared to the 170k consensus, and stable unemployment, suggesting a positive labor market surprise. Additionally, early consensus estimates for the MoM Core CPI are around 0.3%, indicating persistent inflation and a hawkishly priced Federal Reserve. Despite improved sentiment on tariffs, Citi warns that markets remain sensitive to this issue, with USD overvaluation compressed and tariff risks still present. The report suggests that the current USD correction offers an attractive opportunity for tactical upside within a potentially choppy range.