Further dollar weakness may be in store - Goldman Sachs

In its note to clients, Zach Pandl, co-head of global foreign exchange and emerging markets strategy at Goldman Sachs, wrote that the outlook for the US dollar looks bleak, given the improving global economic growth.

Key Quotes via Bloomberg:

“A favorable risk environment has tended to go hand-in-hand with dollar weakness.” 

“Faster global growth “has favored other economies and their currencies relative to the U.S. and the dollar, and has been the key reason for our ‘soggy dollar’ outlook.”

“Further dollar weakness may be in store, even as the Federal Reserve keeps tightening policy and U.S. Treasury yields climb. That’s in part because some investors are still “structurally long” dollar assets.”

“Hedge funds and commodity trading advisers have moved to short dollars, but other investors “likely have scope for additional dollar selling,” 

Pandl highlighted key reasons for the dollar depreciation:

• “Global economic strengthening boosts trade volumes, in turn helping the currencies of goods exporters such as South Korea and Malaysia.
• Rising commodity prices have helped natural-resource exporters including Chile.
• Convergence in monetary policy with the U.S.; Goldman sees countries including Australia and Sweden raising interest rates this year, while the European Central Bank moves toward normalization.”