The dollar could be on the verge of a 10-year-long bear market as currency investors return to risk, a Citi strategist warns

• The US dollar has depreciated against key peers, such as the Australian dollar, the Singapore dollar and the Chinese Yuan over the past five days.
• Calvin Tse, strategist at Citigroup said: "We could see the dollar enter into a bear market that could last for five to 10 years."
• The Australian dollar has appreciated against the US dollar by roughly 5% in the last week alone.
• One analyst warned that the ongoing US protests may lead to more fiscal stimulus, which could further weaken the dollar.

The dollar may be bracing to enter a bear market that could last between five and 10 years, a strategist at Citigroup warned, suggesting that the greenback's status as a safe haven is under threat.

The Financial Times reported that Calvin Tse, strategist at Citigroup, said: "If the global economy really is bottoming out and rebounding again, and US interest rates are at zero and potential growth is lower than emerging markets, we could see the dollar enter into a bear market that could last for five to 10 years."

Tse's words echo those of Goldman Sachs, which earlier this week said it has started shorting the dollar.

"We had been discouraging investors from putting dollar shorts in their portfolios during the past few months because of our concern about the [backdrop], but that has changed," Zach Pandl, a strategist at Goldman Sachs told the FT.

US dollar is depreciating against its peers

Wall Street's pessimism on the dollar comes as the safe-haven currency has depreciated against many of its international peers in the last few days.

The US Dollar index plunged to 97.67 on Tuesday, its lowest level since March, and it has lost ground against most notably the Australian dollar. It has also depreciated against the euro, sterling and other currencies like the Chinese yuan.

The US dollar has weakened about 5% against the Australian dollar in the last week. It is also down about 5% over the past month.

It is currently flat at 0.69 as of 8:20 a.m. ET, according to Markets Insider data.

You can see a chart of the trade in recent days below (The Australian dollar to US dollar pairing is most commonly expressed as AUD/USD, so a chart of the US dollar falling against the Aussie dollar shows the Australian currency gaining ground):

Jeffrey Halley, senior market analyst, Asia-Pacific at OANDA, said: "After being laggards to the global recovery rally seen elsewhere, currency markets appear to be accelerating their participation. The rotation out of haven US Dollar long positioning gained more momentum overnight, with trade-centric currencies such as the Australian Dollar again, notable outperformers."

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Halley added: "The momentum of the rotation out of haven US Dollars and into more risk-seeking recovery positioning shows no signs of abating. Overnight the greenback suffered a series of setbacks, notably again against the commodity currencies, but also versus developed markets."

The US dollar has been quite resilient to a number of shocks in the recent months, including record-low interest rates, and a wave of stimulus measures that has flooded the market.

But the dollar's recent weakness may signal interest in the safe-haven currency is now waning as investors pin hopes on an economic recovery and flock to riskier assets.

The US has already launched one $2 trillion stimulus programme, and another worth $3 trillion is currently before the Senate. It is unlikely to pass, however, as it was proposed by the Democratic Party and the Senate is controlled by Republicans.

How US protests can shape the dollar

Giles Coghlan, chief currency analyst at HYCM, pointed out that the dollar could face a fresh pull back due to ongoing protests across the US.

Protests erupted last week after the death of a black man, George Floyd while in police custody in Minneapolis.

Some of the protests have erupted into civil unrest including violence, destruction of property and looting. This prompted President Trump to threaten to deploy troops on the streets to quash unrest.

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"Interestingly, the USD was in a position of relative strength prior to the protests occurring. Investors were rallying to the USD as a safe haven currency amidst the COVID-19 pandemic," Coghlan said.

Stock markets have rallied since protests have erupted, but Coghlan said the a strong fiscal response due to the protests could further tank the safe-haven currency.

Coghlan added: "Printing more money is not something alien to US fiscal policy. However, the timing is not ideal. The US is currently running a $4 trillion deficit in 2020. Congress has also authorized a $3 trillion spending package. Any further spending packages as a result of the protests will only serve to weaken the USD in the long run."