May 20, 2025 – 6:24 PM Taipei Time

The G7 finance ministers meeting in Canada may becomes a focal point for global markets. According to Citigroup’s FX strategy team, led by Chief Strategist Osamu Takashima, the U.S. dollar may have more room to weaken as tensions over tariffs continue to ease between the U.S. and its key trading partners.

While the U.S. hasn’t actively pushed for a weaker dollar, its recent moves to soften some tariff measures are having a tangible impact. These policy shifts are eroding the dollar’s status as a safe-haven and strong currency, particularly as the G7 appears poised to modify its messaging around exchange rate discussions. As a result, market sentiment toward the dollar has turned more cautious.

Recent forex movements underscore this shift. The U.S. dollar index has dipped to a 10-day low. Meanwhile, the euro climbed to 1.1248 against the dollar, and the yen strengthened to 144.51 per dollar. These moves reflect growing expectations that central banks, especially in Europe and Japan, remain wary of letting their currencies appreciate too quickly—a concern tied to the export-driven nature of their economies.

Adding to the picture, the U.S. Treasury recently delayed punitive tariffs on the EU and Japan, and extended tariff exemptions under the USMCA agreement. These actions may not directly target exchange rates, but they’ve significantly dialed down trade tensions—reducing demand for safe-haven assets like the dollar.

Citigroup also pointed out a sharp increase in bullish positions on the euro in the options market, suggesting that traders are already positioning for a continued dollar downturn. Year-to-date, the dollar index is down about 6.5%, signaling a shift in how investors are viewing the greenback.

In short, even without an official weak-dollar policy, the U.S. dollar’s dominance is being challenged by shifting global trade dynamics. Over the coming weeks, markets will be watching G7 statements and follow-up actions from major economies to determine whether this trend will persist. For investors, now may be the right time to revisit their currency allocations and hedging strategies.