Is Plaza Accord 2.0 coming? Citi expects the US dollar to open a depreciation channel after the G7 meeting

The Zhitong Finance App learned that Citigroup said that the US dollar may fall further after this week's Group of Seven (G7) meeting because world leaders are discussing exchange rate policies as part of trade negotiations with the US.

Bank of Japan monetary strategist led by Osamu Takashima wrote in a report that Washington is unlikely to “actively pursue” a weak dollar, but that the dollar will eventually depreciate as the US reaches an agreement with its trading partners to reduce tariffs.

Exchange rate policy was the focus ahead of the G7 meeting, which began on Tuesday. Earlier, officials from South Korea and Taiwan Province of China hinted that discussions have been held with the US on this issue. Japan's finance minister said earlier on Tuesday that he is arranging a bilateral meeting with US Treasury Secretary Bezent this week to discuss issues including exchange rate issues.

The Citigroup strategist wrote, “We doubt that exchange rate appreciation may be required as part of the tariff reduction negotiations,” adding that Japan and China and other East Asian countries may be targeted. “We suspect that the Bank of Japan's monetary policy is being discussed behind the scenes in the US-Japan trade negotiations. ”

Citi expects that Bezent will not seek an agreement to comprehensively suppress the US dollar like the 1985 “Plaza Accord”, but will instead emphasize the central bank's role in exchange rate issues. They said that Bezent may also be concerned about the impact of foreign exchange reserve investment policies on US interest rates.

“We do think the risk of a depreciation of the dollar is rising,” the strategists said. “As high tariffs are lifted, America's momentum to maintain a strong dollar policy will weaken,” they added.

Since the US announced high tariffs in early April and caused turmoil in global markets, the Bloomberg Dollar Spot Index has fallen 4%. Since then, the chaotic implementation process and uncertainty about the enduring nature of tariffs have raised questions about US policy, undermining confidence in the dollar and other US assets.