Goldman Sachs: Moving In The Right Direction, But Still Not In The Clear

Goldman Sachs note that they "have been focused on two key issues to inform the near-term USD view: global growth risks from the Delta variant and the Fed's tightening timeline. Incoming information on both last week pointed in the direction of renewed USD downside on balance, but it is still not conclusive."

• "On the health side, the market appeared to take some comfort from falling cases in England and Spain, with some stabilization in the US and European growth factors from our macro factor model. That is consistent with our economists' view that the recovery is likely to be a little slower, but the risk of more severe growth disruptions in highly-vaccinated countries is much more limited. However, the trend is still tenuous and developing research on the Delta variant reinforces that part of the softer risk backdrop in July reflects the difficulty adapting to uncertain information."
• "Turning to Fed policy, last week's meeting offered little new information; the FOMC advanced the tapering discussion without shifting the timeline, removing a potential source of USD upside. Still, the meeting confirmed that the Fed is moving towards the exit, with less concern about the Delta variant, and those plans will probably be even firmer if this week's payrolls report is as strong as expected. While the fog might be starting to clear a bit, we expect the USD to be range bound vs. the G10 for a little longer, and we will wait for more clarity on these issues before reengaging on our core bearish USD view again."