Goldman Sachs strategists marked to reality their bearish stance on the U.S. dollar, as they ended a recommendation to bet against the world’s reserve currency in the face of surprising strength.
Since early October, Goldman Sachs had recommended shorting the dollar against a basket of major commodity currencies — the Australian dollar
the Canadian dollar
the Norwegian krone
and the New Zealand dollar
The trade was a positive one for the bank, with a 5% gain, but flat performance since the beginning of the year.
The U.S. dollar index
which is a basket of six currencies including the euro, has gained 3% this year.
Strategists led by Zach Pandl say firm U.S. growth and rising bond yields may keep the greenback supported over the short term. They also say the big opportunity will be to position for a recovery in European activity.
COVID-19 vaccinations are set to accelerate significantly in April and May, and that could lead to easing lockdowns, they say. “Accelerating European growth should help unwind some of the divergence with the U.S. priced into domestic yield curves, as well as support commodity prices and risky assets generally,” they say.
While the yield on the 10-year Treasury
has climbed to 1.71%, from 0.92% at the beginning of the year, the yield on the 10-year German bund
hasn’t climbed as much, to -0.30% from -0.61%.
The strategists are keeping their three-month euro/dollar forecast at $1.21 and their 12-month view at $1.28. The euro
was trading at $1.1808 on Tuesday morning.
U.S. stocks ended at a record on Monday, with the S&P 500
up 9% this year.
Related: A defiantly resilient dollar could become a problem for U.S. stocks — here’s when to worry