Add Goldman Sachs Group Inc. to the growing pack of dollar pessimists in the aftermath of Wednesday’s big inflation report.
(Bloomberg) — Add Goldman Sachs Group Inc. to the growing pack of dollar pessimists in the aftermath of Wednesday’s big inflation report.
The greenback will continue to ease at a moderate pace, boosting currencies under pressure from the Federal Reserve’s aggressive policy tightening, from emerging markets and the Swedish krona to the Japanese yen, per Goldman.
“The dollar has sold off sharply in response to cooler inflation and anticipation of a more patient Federal Reserve stance beyond July,” wrote Goldman analysts Michael Cahill, Isabella Rosenberg and Teresa Alves in a Thursday note. “We think this can extend because the same factors that weighed on yesterday’s report look likely to be softer still in coming months.”
Data this week showed a material slowdown in US price pressures, casting doubts on additional interest-rate increases after an anticipated July hike. In turn, the Bloomberg Dollar Spot Index dropped nearly 1% Wednesday to hit the weakest since April last year — a downward move that’s continuing in Thursday trading.
The shift in the US dollar is rippling through global currency markets, after the Swiss franc rallied to the strongest since 2015 while the euro and the British pound rose to more than one-year highs.
Still, the dollar index lost about 5% in the two months after it reached its September peak while price pressures remain elevated — suggesting the fade-the-dollar trade isn’t without risks.
“We still maintain that overall dollar depreciation should be shallower and more subdued than after other peaks,” Goldman analysts wrote.
The Bloomberg Dollar Spot Index fell 0.5% Thursday. The Swedish krona was the best performer among the Group-of-10 currencies, gaining 1.7% against the greenback. The yen gained 0.3%.
“More tempered upside risks for the dollar should make a clearer case for pro-cyclical G-10 currencies that still have work to do on the domestic inflation picture,” the Goldman analysts wrote. “GBP is at the top of our list here, but NOK should also do well.”
The Norwegian krone rose 1.2% and British pound added 0.9% against the dollar in Thursday trading in New York.
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