Tags: Citigroup | Dollar | Drop | 2011 | Treasurys | Fall

Citigroup: Dollar May Drop 11 Percent in 2011 as Treasurys Fall

Wednesday, 15 Dec 2010 12:32 PM

The dollar may drop 11 percent versus the euro next year as investors shun U.S. assets and drive bonds lower, according to Citigroup Inc.

“It’s a bearish U.S. asset dynamic led by the bond market,” Tom Fitzpatrick, chief technical analyst, said in a telephone interview. “This period has a set-up that is amazingly like what we saw in the ‘70s, and is similar to what we saw around 1993.”

The dollar will follow trading patterns from the 1970s, when the housing market experienced a decline similar to the recent drop, and the 1990s, which also saw a slump in the bond market, technical analysts led by New York-based Fitzpatrick wrote in a note to clients. U.S. two-year yields doubled from a low of 3.7 percent in September 1993 to a high of 7.7 percent in December of 1994, pushing bond prices lower.

The greenback will follow Treasurys lower next year as investor concern mounts the housing-market recovery will remain constrained and as the Federal Reserve pumps $600 billion into U.S. debt to help a slowing economic recovery, they wrote. Two-year Treasury notes fell two basis points today to 0.63 percent.

The dollar rose 0.5 percent today to $1.3312 and has gained 7 percent versus the euro this year.

The analysts project an 8 percent decline next year for the Dollar Index, which IntercontinentalExchange Inc. uses to track the greenback against the currencies of six major U.S. trading partners including the euro, yen and pound. The index is up 2.4 percent this year.

The housing industry has remained near the depths reached during the recession. Housing starts fell to a 519,000 annual rate in October, the fewest since a record low reached in April 2009.

The euro has dropped this year as member nations struggle to finance budget deficits and contain a struggling banking sector. Greece and Ireland have both tapped into a near-$1 trillion rescue fund set up by the European Union with backing from the International Monetary Fund.

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The dollar may drop 11 percent versus the euro next year as investors shun U.S. assets and drive bonds lower, according to Citigroup Inc. It s a bearish U.S. asset dynamic led by the bond market, Tom Fitzpatrick, chief technical analyst, said in a telephone interview. ...
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Wednesday, 15 Dec 2010 12:32 PM
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