Goldman Sachs Weigh In On Recent USD Bid

Goldman Sachs write “recent news suggests that the global economy is still on solid footing, which should in principle be negative for the safe-haven USD. We see the recent shift mostly as a correction from the market having moved too far, too fast to discount the issues that plagued global macro for much of 2022.”

• “We expect the improving global outlook to ultimately lead the USD somewhat weaker through 2023, but with bouts of strength given the still-difficult road for policymakers trying to slow the economy just enough to bring inflation back to target.”
• “We believe we are in the middle of one of those resurgent periods now, with some further room to run. This is consistent with our finding that the road after USD peaks tends to be bumpier when there is limited economic slack, and overall USD moves tend to be more limited when the equity-bond correlation normalizes.”
• “Consistent with this, we expect the mix of better growth news and a higher terminal rate should continue to be most positive for the USD against the JPY. More structurally, we expect that the longer hiking cycle will be beneficial against the “reluctant hikers” like CAD and GBP, with NZD potentially joining that list this week as well.”