Federal Reserve Chair Kevin Warsh’s upcoming speech at the Jackson Hole economic symposium is not expected to halt the dollar’s recent depreciation, according to Citi’s latest foreign exchange assessment published on August 25, 2026.
Citi’s strategists argue that risks to the dollar’s trajectory stem primarily from valuation and positioning rather than a fundamental shift in Fed policy. Warsh has indicated that his remarks could either frame the "big questions" facing policymakers or serve as a traditional setup for upcoming Federal Open Market Committee meetings. Citi views the likely outcome as a blend of these approaches, emphasizing medium-term themes over immediate policy signals.
The bank’s FX team has maintained a bearish stance on the dollar, citing three scenarios where Warsh might signal a hawkish tilt—none of which currently align with prevailing conditions. First, the 10 basis points of rate hike premium already priced into the September meeting is deemed sufficient to satisfy financial conditions. Second, Citi’s rates strategists note that even a substantial hawkish surprise is unlikely to reverse the recent increase in term premium. Third, recent inflation data has broadly softened, reducing the likelihood of a reacceleration.
Citi’s real rates model for EUR/USD projects a target of 1.18, factoring in an overshoot scenario. This outlook assumes the Fed holds rates steady, the European Central Bank delivers one additional hike, and oil prices normalize gradually. The bank’s FX team has also highlighted risks tied to positioning, valuation, and geopolitical tensions, particularly the U.S.–Iran conflict, for which they recommend hedging via a four-month NOK/SEK call spread.
On the balance sheet front, Citi suggests that any hawkish surprises from Warsh would likely stem from a preview of the task force’s findings. However, the bank sees little incentive for such signals, especially if Treasury Secretary Bessent coordinates messaging with the Fed chair. Instead, discussions around the task force’s work are expected to focus on artificial intelligence and productivity, which Citi describes as "lean dovish/disinflationary."
