Citi discusses the USD outlook and its expectations for this week's FOMC June policy meeting.
"We see tactical USD upside driven by risk reduction into the June FOMC meeting on Wednesday. We don’t expect a major ‘taper warning’ signal at this meeting, where USD will likely follow the nominal yields down in that scenario," Citi notes.
"However, with the recent reduction in Fed hike pricing suggesting that the market consensus leans towards the dovish outcome on Wednesday, should the Fed surprise hawkishly, the market reaction will likely be larger. In the absence of a taper signal, we see central bank divergence narrative (dovish ECB vs Fed) to reverse partially, benefitting EURUSD," Citi adds.