Citi's top US economist stood by his 2026 Fed rate-cut forecast, triggering a dollar decline to 98.20 and a six-basis-point drop in 10-year yields to 3.85%, as the debate over policy easing intensifies.
The dollar index dropped 0.3% to 98.20 as Hollenhorst's defense shifted market pricing toward a higher probability of a September rate cut, eroding the greenback's yield advantage.
The dollar fell as markets reassessed the chance of a September Fed cut after Citi's chief economist reiterated his forecast, reducing the dollar's relative yield appeal.
Hollenhorst projected the dollar index could slide to 95 by year-end if the Fed delivers his projected 75 bps of easing, citing narrowing rate differentials.
Near-term support at 98.00 held, and further dollar weakness depends on incoming data validating Hollenhorst's view; a reversal in rate-cut pricing could quickly lift the greenback.
10-year Treasury yields fell six basis points to 3.85% as Hollenhorst's defense of aggressive Fed cuts led to buying in bonds, pushing yields lower.
Yields fell as markets increased the probability of a September Fed cut after Citi's rate-cut defense, spurring demand for longer-dated bonds.
The 10-year yield dropped six basis points to 3.85%, reflecting a modest but notable re-evaluation of easing expectations.
Yes, if upcoming inflation or labor data contradict Hollenhorst's thesis, yields could snap back, especially with the market still largely pricing no cut.
Citi's chief US economist Andrew Hollenhorst reaffirmed his call for 75 basis points of Fed cuts in 2026, dismissing hotter-than-expected core CPI as transitory. The dollar fell 0.3% to 98.20 and the 10-year yield dropped six basis points to 3.85%, as markets priced in a 62% chance of a September cut. Hollenhorst argued that weakening labor market data and tariff drag will force the Fed's hand, contrasting with swaps that still price less than one cut.
Citi's chief US economist Andrew Hollenhorst predicts the Federal Reserve will cut rates by 75 basis points in 2026, starting in September, as weakening labor markets and trade uncertainty outweigh inflation concerns.
Markets and many economists expect the Fed to hold rates steady or even hike due to persistently high inflation readings, making Hollenhorst's forecast an outlier.
The dollar slipped and Treasury yields fell as some investors reassessed the likelihood of a cut, though trading volumes were thin and conviction remains low.