G7 Discussions Could Impact Dollar’s Value

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Citi Group forecasts the US dollar may weaken further after this week’s G7 meeting. Global leaders are expected to discuss currency policies as part of trade negotiations with the US.

A team of currency strategists at Citi, led by Osamu Takashima, noted in a report that Washington is unlikely to actively push for a weaker dollar. However, they expect the dollar to depreciate as the US reaches tariff-reduction agreements with trade partners.

Currency Policies Take Center Stage

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Exchange rate policies have become a key topic ahead of the G7 meeting starting Tuesday. Officials from South Korea and Taiwan have hinted at discussions with the US on this issue. Japan’s Finance Minister also confirmed plans for a bilateral meeting with US Treasury Secretary Janet Yellen this week to discuss exchange rates and other matters.

Possible Currency Appreciation Requests

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Citi strategists suspect that currency appreciation may be requested as part of tariff-reduction talks. They suggest Japan, China, and other East Asian economies could be targeted. The report also raises concerns that Japan’s monetary policy might be discussed behind the scenes in US-Japan trade negotiations.

No Repeat of Plaza Accord, but Focus on Central Banks

Citi does not expect Yellen to push for a broad dollar-suppressing agreement like the 1985 Plaza Accord. Instead, they believe she will emphasize central banks’ role in exchange rate policies. The Treasury Secretary may also examine how foreign reserve investments affect US interest rates.

Rising Risks of Dollar Depreciation

The strategists see increasing risks of dollar depreciation. They argue that as high tariffs are removed, the US will have less incentive to maintain a strong-dollar policy.

Recent Dollar Weakness and Market Uncertainty

Since early April, when the US announced high tariffs and triggered global market volatility, the Bloomberg Dollar Spot Index has dropped 4%. Confusion over implementation and doubts about the tariffs’ long-term impact have raised questions about US policy, weakening confidence in the dollar and other US assets.

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