Citi Chief Economist: Dollar Could See More Downward Pressure

Politics Reuters

More losses could follow the dollar's recent 5-cent slide versus the euro, Citigroup global chief economist Willem Buiter said on Friday, another major voice to question forecasts the greenback will march relentlessly higher.

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The official forecast from the currency strategy team at Citi, the foreign exchange market's single biggest player, is for the dollar to rise past parity to the euro in the third quarter of this year.

But Buiter, a past member of the Bank of England's Monetary Policy Committee and professor at Yale, Cambridge and the London School of Economics, said there was the potential for the next batch of U.S. jobs numbers to trigger a slide.

That largely reflects doubts about the solidity of U.S. growth, backed by poor retail sales and durable goods data this month, and his belief that the Federal Reserve will not raise U.S. interest rates until at least December.

"There is the suspicion that the U.S. economy is weaker than we think," Buiter said. "The next batch of U.S. labor (figures) will be unusually important. If they confirm that weakness then we are likely to see more downward pressure on the dollar."

He and his colleagues from the bank's economics team said they stood by official forecasts for the dollar to strengthen further in the longer run, given the prospect of a prolonged program of money-printing by the European Central Bank.

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But Buiter said expectations the Fed will hike rates in the third quarter of this year now looked misplaced.

"The market is still behind the curve on the Fed increases, they are likely to move later and therefore you could expect some relative weakening on the dollar," he said.

After months when the major banks all predicted inexorable gains for the dollar, the first cracks have begun to appear.

On March 19, HSBC said it now expected the euro to be worth $1.20 by the end of 2017, arguing that a nearly uninterrupted rally in the dollar since June was nearing its end. Analysts from JP Morgan have voiced similar doubts.

The euro traded at $1.0860 per dollar on Friday, up 0.2 percent on the day, and roughly halfway between the lows and highs of a volatile two weeks. (Writing by Patrick Graham; Editing by Catherine Evans)