Federal Reserve Chair Kevin Warsh’s upcoming remarks at the Jackson Hole economic symposium are unlikely to halt the dollar’s recent decline, according to Citi strategists. The bank’s analysis suggests risks to the greenback’s outlook stem primarily from valuation and positioning rather than any fundamental shift in policy expectations.
Citi does not anticipate a hawkish surprise from Warsh’s speech on Friday, noting that 10 basis points of rate hike expectations are already priced into the curve for September. The bank’s rates team argues this premium is sufficient to satisfy the Fed’s financial conditions framework, reducing the likelihood of a hawkish pivot. Strategists also dismiss the need for a surprise to anchor long-end yields, citing softer inflation data over recent months as evidence against reaccelerating price pressures.
The dollar’s bearish trend remains intact in Citi’s latest FX forecast, which shifted from neutral to bearish in early August. The bank highlights stretched EUR/USD valuations, with its real rates model targeting 1.18 under assumptions that include a single ECB hike, a steady Fed stance, and gradual normalization in oil prices. Leveraged accounts have already positioned for further dollar weakness, leaving scope for position trimming around Jackson Hole if positioning risks materialize.
Geopolitical risks tied to the U.S.–Iran conflict could also influence the dollar’s trajectory, with Citi recommending a four-month NOK/SEK call spread as a hedge. Meanwhile, any previews of the Fed’s balance sheet task force are expected to focus on artificial intelligence and productivity themes, which strategists view as dovish or disinflationary. Coordination between Warsh and Treasury Secretary Bessent appears unlikely to produce a hawkish surprise on balance sheet policy.
