Citi Says EUR/USD Could Hit 0.86

The persistently strong U.S. dollar continues to create headwinds for businesses that have high international exposure. The EUR/USD has settled below parity for a few weeks now with analysts expecting the pair to test new 20-year lows soon amid rising rate yields.

Citi strategist Dirk Willer argues that the U.S. dollar “has likely not peaked yet.” Citi sees EUR/USD falling to 0.93, although their FX strategists argue that the major could eventually hit 0.86 if macro headwinds increase.

On how the continued strength of the greenback will impact broader markets, Willer wrote:

“A strong USD is a negative for US assets across the board. While the impact of the USD on the US economy should be manageable, asset prices will likely react. We expect the USD basis to widen, which is negatively correlated with risky assets. Earnings of US equities are likely pressured lower by a strong USD,” the strategist said in a client note.

As far as the Japanese yen is concerned, Willer sees the potential for a BoJ reaction if the USD/JPY continues to make new highs.

By Senad Karaahmetovic

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