USD: Expect the strong trend to fade – Goldman Sachs

Goldman Sachs FX team has recently downgraded their forecasts for further dollar strength as they think the sustained appreciation in the broad US dollar appears to be moving into its latter stages.

Key Quotes

“They are not quite ready to call the dollar trend over, as several factors supporting appreciation over the last three years remain in place, including: (1) a US economy at full employment, (2) expected US fiscal stimulus, and (3) conservative market pricing for the Fed. However, a number of fundamentals have changed: (1) the dollar is now moderately overvalued according to GSDEER and other standard metrics, (2) growth outside the US is picking up, and (3) the scope for monetary policy divergence beyond this year is much smaller than in the past.”

“They are therefore revising down our 12-month forecasts for appreciation in the (nominal) trade-weighted dollar to +3.25% from +6.75% previously. Among G10 currencies we expect the dollar to outperform GBP, JPY, EUR, CHF, and SEK but underperform NZD, CAD, NOK, and AUD.”