Goldman Sachs: A Negative Mix For The Dollar

Goldman Sachs note that “over the last few months, activity news abroad has clearly surprised to the upside. At the same time, spot inflation in the U.S. has been soft enough to attenuate the risk of an even more aggressive Fed hiking cycle while the ECB and BoJ have moved in a more hawkish direction.”

• “It would be difficult to conjure a more negative mix of news for the still-highly-valued U.S. Dollar. And, importantly, there appear to be relatively few obstacles to change this path in the near term.”
• “We expect the Fed to slow the pace of hikes again at its next meeting, and this clear desire to slow tends to ease financial conditions, and we suspect that consensus will follow our economists in revising up RoW growth.”
• “Over time, we think the narrative may shift back in a more neutral or USD supportive direction - as U.S. economic resilience becomes more apparent and our FCI framework suggests that the balance of risks is still tilted towards more Fed hikes rather than the cuts priced in the back half of the year. But for now it is important to acknowledge that recent fundamentals support the recent USD shift, and that seems unlikely to change in the near term.”