Geopolitical shocks prompt Citibank to cut back risk exposure

Investing.com - Citibank revealed in a report on Wednesday that after a sudden and intense volatility triggered by geopolitical tensions, the bank is reducing risk exposure across multiple macro positions.

Get analyst-driven in-depth data with InvestingPro

Analyst Dirk Willer wrote, “Geopolitical events often lead to very intense but short-lived market chaos,” but he added that the current cross-asset trends “feel like a VAR shock, which could intensify until the situation finally stabilizes.”

Willer stated that risk management is now a top priority.

According to Citibank, the team “reduced some risk exposures, either triggered by stop-losses or in overly concentrated positions.”

The bank has closed its long EURUSD position, booked profits in emerging market forex arbitrage portfolios, exited HUF and BRL receiver positions, and closed a 30-year UK government bond long position relative to French bonds.

The report described this event as a “true VAR shock,” adding that while market conditions may stabilize, “buying the dip a day early could lead to significant losses.”

Citibank is reducing exposure in heavily weighted areas, especially in emerging market forex arbitrage and interest rate markets that have attracted significant interest due to expectations of imminent rate cuts.

The US dollar has reemerged as a safe haven. Citibank stated that the shift in trade conditions triggered by Iran-related news has surpassed other drivers, pushing EURUSD to levels that trigger the bank’s retracement limits.

“We respect our retracement limits and have closed our long EURUSD spot trades,” Willer wrote.

He added that although these shocks are usually short-lived, “these assets must be bought back at some point” once volatility subsides.

This article was translated with the assistance of artificial intelligence. For more information, please see our Terms of Use.