Goldman Sachs: USD Weakness: EM Leadership May Come Later

Goldman Sachs note that "EM currencies (with the exception of CEE FX)
have underperformed G10 FX in the recent bout of USD weakness. On
one hand, this gap has been driven by the outperformance of European
satellite currencies in both G10 and EM. With the Euro area still on track
to outperform, we recommend staying short USD/PLN (though we have
tightened stops after the recent sharp moves).…EM leadership may
come later. On the other hand, EM FX underperformance also reflects a
decreased real rate and carry advantage for EM FX, and represents a
departure from several years of total return outperformance of EM FX vs.
G10 and EUR. In order for EM FX to take the lead in a H2 Dollar down
move, we would likely need to see (i) a continued recovery in global
growth and risk sentiment, (ii) some normalisation of global trade
policy (and US-China trade tensions), and (iii) further evidence of
credible COVID management in highly affected EMs. For now, we prefer
selective exposure to short USD/MXN among HY EM FX."