dollar Markets

Goldman On The Dollar: Depreciation To Extend Into 2021 – And ‘Possibly Well Beyond’

The broad, trade-weighted dollar will decline 6% over the next 12 months, Goldman says, in the bank's 2021 global FX outlook. Part of the thesis is predicated on the notion that the global economic recovery will be robust, an outcome that's expected to sap demand for the dollar and USD assets, even if the US economy manages to sustain some semblance of momentum. Anyone steeped in the discussion can write this script for themselves. That doesn't mean it's necessarily "right," it just means the narrative is familiar. The bank's Zach Pandl notes that "for international investors, overweights in US markets have been almost unavoidable over the last decade." Why? Well, simple. Corporate profits stateside have held up, buoyed in part by the tech giants, while Europe labored for years under the weight of the sovereign debt crisis and a slow, painful trek down the road to Japanification. Emerging markets, meanwhile, were challenged at various intervals by weakness in commodity prices and a Chinese economy that, while still robust, witnessed decelerating growth rates. Then, beginning late in 2015, the US started hiking rates, albeit at a snail's pace and with an almost immediate pause a
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4 comments on “Goldman On The Dollar: Depreciation To Extend Into 2021 – And ‘Possibly Well Beyond’

  1. runamok says:

    Wait. Right off, I’m not sure this makes sense: “Part of the thesis is predicated on the notion that the global economic recovery will be robust, an outcome that’s expected to sap demand for the dollar and USD assets.” A plenty big offset is that the USD is used in settlement for about sixty to 70% of global trade. If the global economic recovery will be robust, that will result in increased demand for US dollars.

    I guess Goldman, a company that adds almost no productive value to the economy, a company that has traded against their own clients in the past, knows best.

    Reports like this bloviate. Goldman could save the ink and just say that they expect a kind of goldilocks environment, somewhere between US not outperforming and global, financial markets being quiet and happy. Best guess is 6% down.

    Then there is rates. The Fed has cut the Federal Funds Rate to zero. I guess this is the rate they are referring to? Foreign investors don’t receive the Federal Funds Rate when they invest in assets in the US.

    This Goldman thesis sounds like it’s made out of thin air, an excuse to use classical, economic reasoning in a world where the old rules apply less and less often.

    Rather than the beauty of free markets at work, more plausible is that the Fed will engineer the move lower in cooperation with other CBs. Providing false assurance to reports like this, the Fed could conceivably make a statement next year that the market worked on it’s own, and the USD is now lower.

  2. IF the US dollar drops 6% in value in the coming year … I assume that there’s a good chance that the yellow door-stops will increase in value by, say, 6%?? Which raises a question … looking at all the financial quarterly reports put out by all the gold mine companies … they all pretty consistently report selling close to all the gold they mine and process into a saleable product. That’s a fair whack of gold. Who is buying all that gold??

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