USD: Goldman Sachs On USD - Volatility Likely To Pick Up, But Firmer USD Outlook

Goldman Sachs: "USD: Into the storm. We expect that coming US policy changes will add to the case for Dollar strength, even beyond the strong asset returns that have proven a high bar to beat in recent years. That said, we see some near-term risks given the market's building expectation for quick action on tariffs, and the Dollar's demonstrated proclivity to weaken on signs of a more graduated approach to tariffs. We think investors are probably taking “Day 1” pledges too literally; while it has become common for presidents to sign some executive orders on the first day, these are often more symbolic or aimed at rolling back policies from the previous administration. And it is not just investors that are expecting a clear signal from next week. For example, the Bank of Japan cited uncertainty around the incoming US administration’s policies as one factor impacting its decision to keep rates steady in December. This strikes us as overly optimistic for a quick resolution of that uncertainty. While the president can take relatively quick action on trade under a range of existing authorities, there are a number of measures that our economists expect to be seriously considered but ultimately not enacted. That implies a series of back-and-forth headlines, just like last time. Rather than next week bringing clarity, we think the storm is just rolling in. We expect it will pay to be patient."