Goldman: Less Now, More Later

Goldman Sachs write “it would be difficult to conjure a more negative mix of news for the still-highly-valued USD than the last few months have offered, with much better activity news abroad, lower commodity prices and softer inflation newsin the U.S. And it is difficult to see many near-term obstacles to change that narrative.”

• They believe there is a “fairly friendly calendar for USD bears at least until potential upside risks in the Q1 inflation prints.”
• “Taking a step back, in late 2022, we and consensus generally expected USD strength to persist somewhat longer givenexpectations of sluggishglobal growth and elevated policy risks, before eventually clearing the way for more sustained USD downside.”
• “We now see a rising case that this is instead playing out in reverse. In our FCI framework, weaker U.S. activity data for Q4 represents the peak drag from tighter policy, rather than the start of something more sinister. And we still see the balance of risks pointed towards potentially further tightening needed, rather than rate cuts later this year (consensus among economists generally goes the other way).”
• “At the same time, our commodity strategists expect that strongerglobal activity growth will eventually push prices higher again. We therefore still see some important limitations on current market trends, but no clear reversal catalysts over the near term.”