Goldman Sachs: Risks skewed towards sustained dollar strength

<p>Goldman Sachs asserts that despite a macroeconomic backdrop that generally supports a weaker dollar—namely, lower rate volatility, slowing yet solid U.S. growth, and positive risk sentiment—the risks look skewed towards a stronger dollar than most market participants anticipate. This is particularly true against major currencies like the JPY, CNY, and EUR.</p><p>Key Points:</p><ul><li><p>Lower Rate Volatility: Goldman Sachs believes that a "careful" Federal Reserve is likely to maintain lower rate volatility, which typically translates to a weaker dollar.</p></li><li><p>U.S. Growth Slowing but Solid: Although the U.S. economy is growing at a slower pace, it is still considered solid, providing a mixed outlook for the dollar.</p></li><li><p>Positive Risk Sentiment: A generally positive risk sentiment in markets usually would mean a weaker dollar, as investors look for higher returns in riskier assets.</p></li><li><p>Stronger Dollar Scenario: Despite these factors that usually weigh on the dollar, Goldman Sachs argues that the dollar may see sustained strength against major currencies such as the JPY, CNY, and EUR.</p></li><li><p>Narrowing Path for Dollar Depreciation: The firm notes that the conditions needed for a more pronounced dollar depreciation, such as weakening U.S. economic data and improved global conditions, are becoming less likely.</p></li></ul><p>Implications:</p><p>For Traders:</p><ul><li><p>Hedging Strategies: Those who are holding positions in major currencies against the dollar may want to consider hedging strategies to protect against a stronger dollar.</p></li><li><p>Keep an Eye on U.S. Economic Indicators: Tomorrow’s nonfarm payrolls report could offer clues on whether the U.S. economy is slowing down more than anticipated, potentially impacting the dollar's strength.</p></li></ul><p>For Policymakers:</p><ul><li>Dollar Strength Concerns: A stronger dollar could impact U.S. exports and may require attention from policymakers.</li></ul><p>Conclusion:</p><p>Goldman Sachs suggests that despite traditional indicators pointing to a weaker dollar, the risks are skewed towards a more sustained dollar strength, particularly against major currencies. Traders should consider this viewpoint in their trading strategies, while policymakers may need to prepare for the implications of a stronger dollar.</p><p>For bank trade ideas, <a href="https://plus.efxdata.com/ad/track/4655172E54F06040571CD0AB083845AD" rel="nofollow" target="_blank" data-saferedirecturl="https://www.google.com/url?q=https://plus.efxdata.com/ad/track/4655172E54F06040571CD0AB083845AD&amp;source=gmail&amp;ust=1694019732986000&amp;usg=AOvVaw2gCU8wbjPZLDkHzNmNR6XC">check out eFX Plus</a>. For a limited time, get a 7 day free trial, basic for $79 per month and premium at $109 per month. <a href="https://plus.efxdata.com/ad/track/4655172E54F06040571CD0AB083845AD" rel="nofollow" target="_blank" data-saferedirecturl="https://www.google.com/url?q=https://plus.efxdata.com/ad/track/4655172E54F06040571CD0AB083845AD&amp;source=gmail&amp;ust=1694019732986000&amp;usg=AOvVaw2gCU8wbjPZLDkHzNmNR6XC">Get it here</a>.</p>

This article was written by Adam Button at www.forexlive.com.