Goldman Sachs explains: “The logic of this price action closely follows the pattern of markets temporarily losing confidence in the ability of polarised policymakers to compromise. During this period it may look as if the ‘fiscal cliff’ is becoming reality and that the economy could face a negative fiscal shock of up to 5% of GDP. The temporary negative response in cyclical assets would likely also trigger a broader USD rally.”
Goldman Sachs continues: “After that, when policymakers do find a compromise, possibly helped by the market concerns reflected in cyclical asset weakness, risk sentiment could improve rapidly and the USD would weaken again.”
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