Citi (C) Sees Dollar Decline Following Tariff Softening at G-7 Meeting
Citigroup (C) expects the U.S. dollar to weaken following discussions at this week's Group-of-Seven meeting, as global leaders tackle currency issues tied directly to trade negotiations and tariff reductions. Citi analysts led by Osamu Takashima believe Washington is positioning for a subtle depreciation of the greenback, especially as tariff agreements ease tensions with East Asian trade partners. Currency policy has become a significant focus at the G-7 summit, with South Korea, Taiwan, and Japan engaging directly with U.S. officials on the topic. Japan's Finance Minister is slated for bilateral meetings with Treasury Secretary Scott Bessent, heightening expectations that the U.S. will press for currency appreciation among key trade partners as part of broader tariff negotiations. Market Overview:
U.S. dollar expected to weaken following G-7 meetings.
Currency appreciation a potential condition for reduced tariffs.
East Asian nations primary focus in currency discussions.
Key Points:
Citi forecasts dollar depreciation as tariffs are rolled back.
U.S. likely targeting Japan and China's currency policies.
Role of central banks emphasized by Treasury Secretary Bessent.
Looking Ahead:
Dollar poised for further declines pending trade clarity.
Future U.S. interest rates influenced by currency reserve policies.
Tariff negotiations to significantly shape FX market sentiment.
Bull Case:
If the U.S. successfully encourages trade partners like Japan and China to allow their currencies to appreciate as part of tariff reduction deals, it could boost the competitiveness of U.S. exports and help reduce the U.S. trade deficit.
A more balanced global currency landscape, potentially facilitated by G-7 discussions, could lead to smoother trade relations and reduced market volatility in the long run.
A weaker U.S. dollar, as forecasted by Citi, could make U.S. goods and services more attractive internationally, potentially benefiting U.S. multinational corporations and export-oriented industries.
The focus on central bank investment strategies for foreign currency reserves influencing U.S. interest rates, rather than direct intervention, suggests a more market-driven approach to currency adjustments.
Successful negotiations leading to tariff rollbacks and managed currency adjustments could signal a de-escalation of trade tensions, fostering a more stable global economic environment.
Bear Case:
A weakening U.S. dollar, as anticipated by Citi and already evidenced by a 4% drop in the Bloomberg Dollar Spot Index since April, could signal declining confidence in U.S. fiscal and trade policies and the overall safety of U.S. assets.
Pressure from the U.S. for currency appreciation from East Asian trade partners, particularly Japan and China, could be met with resistance or lead to competitive devaluations, increasing FX market volatility.
The depreciation of the dollar may be driven by concerns over the U.S. economy, the national deficit (highlighted by Moody's recent downgrade), and a lack of fiscal restraint, rather than a managed policy outcome.
Uncertainty surrounding the sustainability of U.S. tariffs and the chaotic nature of their implementation has already negatively affected the dollar; further policy shifts could exacerbate this.
If the U.S. pushes too aggressively for currency adjustments, it could strain relationships with key allies and trading partners, potentially complicating broader G-7 objectives and cooperation on other economic issues.
A continued decline in the dollar could lead to imported inflation in the U.S. and may necessitate higher interest rates in the future to attract foreign capital, potentially slowing domestic economic growth.
Citi analysts underscored that rather than pursuing a broad Plaza Accord-style intervention, Treasury Secretary Bessent is expected to emphasize the role of central banks and their investment strategies in influencing currency markets. This nuanced approach could result in continued downward pressure on the dollar as tariff barriers are progressively lowered. Since the introduction of tariffs in April, the Bloomberg Dollar Spot Index has already fallen about 4%, reflecting heightened uncertainty around U.S. fiscal and trade policies. Citi's outlook suggests these trends could persist, especially if U.S. trade strategy continues favoring tariff cuts accompanied by a softer dollar policy stance.
Hashtags
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
National Post
an hour ago
- National Post
Scheffler wins again at Memorial; Stark takes U.S. Women's Open
Article content DUBLIN, Ohio — Scottie Scheffler never lost the lead and never gave anyone much of a chance down the stretch Sunday in another relentless performance, closing with a 2-under 70 for a four-shot victory to join Tiger Woods as the only repeat winners of the Memorial. Article content Article content Slowed by hand surgery at the start of the year from a freak accident, Scheffler appears to be in full stride with one major already in the bag and another around the corner at the U.S. Open. Article content On one of the tougher PGA Tour tests of the year, Scheffler made one bogey over the final 40 holes at Muirfield Village. He finished at 10-under 278. Article content Ben Griffin tried to make it interesting at the end with a 12-foot eagle on the par-5 15th and a 25-foot birdie putt on the par-3 16th to close within two shots with two to play. Scheffler, however, doesn't make mistakes. Griffin made double bogey on the 17th. Article content Griffin made a 4-foot par on the 18th for a 73 to finish alone in second, worth $2.2 million, more than what he earned when he won at Colonial last week. Article content Sepp Straka (70) finished another shot back. Article content Scheffler now has won three times in his last four starts — the exception was Colonial, a tie for fourth the week after winning the PGA Championship — and expanded his margin at No. 1 in the world to levels not seen since Woods in his peak years. Article content Woods is a five-time winner at Memorial who won three straight from 1999 through 2001. No one had repeated at Muirfield Village since then until Scheffler. Article content Article content Maja Stark of Sweden continued the steady play she demonstrated all week to win the U.S. Women's Open at Erin Hills in Wisconsin for her first major championship.
Globe and Mail
2 hours ago
- Globe and Mail
Costco Stock: Can the Momentum Continue?
Costco Wholesale (NASDAQ: COST) continues to be one of the biggest winners in retail, turning in yet another strong quarter amid tariff uncertainty. Its stock also has kept its winning ways, up about 13% year to date and 235% over the past five years (as of this writing). Let's dig into the retailer's most recent results to see whether its momentum can continue. Another strong quarter Not surprisingly, tariffs were a main topic of discussion when Costco held a call with analysts to discuss its fiscal third-quarter earnings. The company said tariffs pose a significant challenge, but it feels confident in its ability to navigate the current uncertain environment. It's working on ways to mitigate the impact, including sourcing more goods locally and actively rerouting products. It said it also strategically pulled forward seasonal summer items. Costco is also working on improving the customer experience. This includes things like investing in technology to expedite the checkout process, extending gas-station hours, and opening new locations around high-volume warehouse stores to help alleviate congestion. It also recently added a "buy now, pay later" program for big-ticket items, which it says is showing initial promise. These initiatives appear to be paying off, with quarterly revenue rising 8% to $63.21 billion and adjusted earnings per share (EPS) increasing 13% to $4.28. That was ahead of the analyst consensus for EPS of $4.24 on revenue of $63.19 billion, as compiled by LSEG. Same-store sales also rose 8% when adjusting for changes in gasoline prices and foreign currency. U.S. same-store sales jumped 7.9% (adjusted), while Canadian comparable-store sales climbed 7.8% (adjusted). Other international same-store sales increased 8.5% (adjusted). E-commerce revenue increased 15.7% on an adjusted basis. Excluding gasoline and currency effects, the average transaction was up 2.7% worldwide and 2.3% in the U.S. Traffic climbed 5.2% worldwide and 5.5% in the U.S. Meat and produce performed well in the quarter, while gold and jewelry, toys, housewares, and home furnishings were all up by double-digit percentages. Membership-fee revenue climbed 10.4% in the quarter to $1.24 billion, as the company continued to benefit from the fee hike that went into effect in September. Memberships, meanwhile, rose by 6.8% to 79.6 million paid households. Higher-cost executive memberships climbed 9% to 37.6 million; these customers account for only 47% of total paid memberships, but 73% of Costco's worldwide sales. The membership renewal rate was 92.7% in North America and 90.2% worldwide. Both numbers were down slightly due to more digital signups, which have slightly lower renewal rates. The company said that a higher percentage of online signups from younger consumers has led to slightly lower renewal rates. Costco also continues to expand, opening eight new locations in the quarter. It ended the quarter with 905 warehouse stores and expects to open nine more locations this quarter. It said approximately 80% of its openings in fiscal Q4 will be in markets with high levels of traffic and they will cannibalize some existing store sales, but ease congestion. Can Costco's momentum continue? When you compare Costco's same-store sales growth to retail competitors, it's clearly winning and taking market share. Target had an awful quarter in which its comparable-store sales fell 3.8%, but even Walmart's 4.5% growth in U.S. same-store sales couldn't come close to matching Costco's 7.9% rise. Consumers just continue to flock to the value that warehouse stores provide. As Costco continues to outperform, its valuation has continued to expand. The stock now trades at a forward price-to-earnings (P/E) ratio of 57.5. Costco's stock has always had a premium valuation, but that has really ballooned in the past few years: COST PE Ratio (Forward) data by YCharts. While I think Costco is a great company, I also think it's difficult to justify such a high multiple given its revenue growth (with percentages in the low teens). It's adding new locations, but some of these will cannibalize sales at existing stores. In addition, its new-location growth is less than 3% this fiscal year, showing the maturity of the concept. That said, I also don't know what will stop the stock's momentum. A high valuation has long been a knock on the stock, but it just keeps rising. I personally wouldn't chase it here, but Costco has proved many investors wrong in the past. Should you invest $1,000 in Costco Wholesale right now? Before you buy stock in Costco Wholesale, consider this: The Motley Fool Stock Advisor analyst team just identified what they believe are the 10 best stocks for investors to buy now… and Costco Wholesale wasn't one of them. The 10 stocks that made the cut could produce monster returns in the coming years. Consider when Netflix made this list on December 17, 2004... if you invested $1,000 at the time of our recommendation, you'd have $651,049!* Or when Nvidia made this list on April 15, 2005... if you invested $1,000 at the time of our recommendation, you'd have $828,224!* Now, it's worth noting Stock Advisor 's total average return is979% — a market-crushing outperformance compared to171%for the S&P 500. Don't miss out on the latest top 10 list, available when you join Stock Advisor. See the 10 stocks » *Stock Advisor returns as of May 19, 2025
Globe and Mail
2 hours ago
- Globe and Mail
US-China Trade Tensions and Fears of a Big OPEC+ Production Hike Weigh on Crude
July WTI crude oil (CLN25) Friday closed down -0.15 (-0.25%), and July RBOB gasoline (RBN25) closed down -0.0221 (-1.08%). Crude oil and gasoline prices today fell to 3-week lows. Dollar strength Friday weighed on crude prices along with the escalation of trade tensions between the US and China, the world's two largest crude consumers. Crude prices also came under pressure Friday after Reuters reported that OPEC+ is considering a July increase in crude production of more than an earlier projected +411,000 bpd. Losses in crude were limited after Libya threatened to shut down its oil production and exports after a militia group stormed the country's state oil headquarters. Also, the outlook for smaller US crude production is bullish for oil prices after Friday's weekly report from Baker Hughes showed active US oil rigs fell to a 3-1/2 year low. Crude prices fell Friday as an escalation of trade tensions between the US and China could lead to slower economic activity and reduced demand for crude. US Treasury Secretary Bessent said that trade talks with China were "a bit stalled," and President Trump accused China of violating its tariff agreement with the US. Crude prices came under pressure Friday after Reuters reported that OPC+ is considering an output increase for July that would be above the +411,000 bpd increase it agreed to for June. Weakness in the crude crack spread is negative for oil prices. Friday's crack spread fell to a 1-1/2 month low, discouraging refiners from purchasing crude oil and refining it into gasoline and distillates. Crude found support Friday after Libya's government said it may halt its crude production and exports in protest after a militia group stormed the state oil company's headquarters. Citigroup estimates that a shutdown of Libyan oil exports could result in a loss of up to 600,000 bpd of crude to global oil markets. Crude oil has support from comments from President Trump, who said that Russian President Putin was "playing with fire" for his continued attacks on Ukraine. CNN reported Tuesday that Mr. Trump could move ahead with new sanctions on Russia in the coming days. Also, Senator Graham said he has the votes in Congress to pass a sweeping sanctions bill against Russia that would slap a 500% tariff on any country that buys Russian energy products. Concern about a global oil glut is negative for crude prices, following Bloomberg's report last Thursday that OPEC+ is considering a 411,000 bpd crude production hike for July when it meets on May 31. On May 3, OPEC+ agreed to raise its crude production level by 411,000 bpd in June. Saudi Arabia has signaled that additional similar-sized increases in crude output could follow, which is viewed as a strategy to reduce oil prices and punish overproducing OPEC+ members, such as Kazakhstan and Iraq. OPEC+ is boosting output to reverse the 2-year-long production cut, gradually restoring a total of 2.2 million bpd of production. OPEC+ had previously planned to restore production between January and late 2025, but now that production cut won't be fully restored until September 2026. OPEC Apr crude production fell -200,000 bpd to 27.24 million bpd. Doubts about a nuclear deal between Iran and the US supported crude oil prices. Iranian Supreme Leader Ali Khamenei said last Tuesday that he doesn't think negotiations with the US will succeed, and he urged the Trump administration to stop "talking nonsense." President Trump recently said Iran will face "something bad" if it doesn't quickly accept a US proposal over its nuclear program. Crude has support on the outlook for smaller global oil supplies after the US State Department recently slapped sanctions on an international network that facilitated the shipment of millions of barrels of Iranian oil to China. The State Department sanctioned the alleged Iranian front company called Sepehr Energy Jahan Nama Pars for using revenue from the sales of crude to fund the development of weapons, including ballistic missiles and drones, nuclear proliferation, and Iran's "terrorist proxies." A decline in crude oil held worldwide on tankers is bearish for oil prices. Vortexa reported Monday that crude oil stored on tankers that have been stationary for at least seven days fell by -4.2% w/w to 95.40 million bbl in the week ended May 23. In a supportive factor for crude oil prices, the US on January 10 imposed new sanctions on Russia's oil industry that could curb global oil supplies. Russian oil product exports in March rose to a 5-month high of 3.45 million bpd, according to data compiled by Bloomberg from analytics firm Vortexa. Weekly vessel-tracking data from Bloomberg showed Russian crude exports fell by -90,000 bpd w/w to 3.4 million bpd in the week to May 18. Thursday's EIA report showed that (1) US crude oil inventories as of May 23 were -6.2% below the seasonal 5-year average, (2) gasoline inventories were -3.1% below the seasonal 5-year average, and (3) distillate inventories were -17.4% below the 5-year seasonal average. US crude oil production in the week ending May 23 rose +0.1% w/w at 13.401 million bpd, modestly below the record high of 13.631 million bpd from the week of December 6. Baker Hughes reported Friday that active US oil rigs in the week ending May 30 fell by -4 to a 3-1/2 year low of 461 rigs. The number of US oil rigs has fallen over the past two years from the 5-year high of 627 rigs posted in December 2022.
