Dollar is running out of steam markets assessing Fed’s policy
2023.01.10 07:41
Dollar is running out of steam markets assessing Fed’s policy
By Kristina Sobol
Budrigannews.com – According to Goldman Sachs, the Federal Reserve’s higher-for-longer rate regime has not yet been priced in, so the dollar may be set for a final rally in the months to come before resuming a steeper downtrend.
The, which compares the dollar to a basket of six major currencies that is weighted by trade, fell by 0.87 percent to 102.75, well below its peak of 114.745 on Sept. 25.
Goldman Sachs stated in a note that, “[O]ur new forecasts suggest that the Dollar has peaked—not likely to revisit the September (during the U.K. fiscal fears) highs again,” but that the currency “is still likely to experience phases of strength in the next 3-6 months, until it retreats more convincingly over a 12m horizon.”
Goldman Sachs added, “our stronger-than-consensus view that the US economy should be able to avoid recession,” citing a robust U.S. labor market and rising global growth expectations amid a further and faster China reopening.
Friday’s data showed that there were 223,000 jobs added last month, exceeding economists’ estimates of 200,000. decreased by more than anticipated to 4.6%.
Goldman Sachs cited the structure of housing finance and [the United States’] energy self-sufficiency, in addition to a robust employment market, as likely indicators that the U.S. economy will be more resilient to monetary policy tightening than other G10 economies.
The majority of American households have fixed-rate mortgages, which are not subject to Fed rate increases and have been locked in at historically low levels, unlike in Europe.
Zhiwei Ren, Managing Director and Portfolio Manager at Penn Mutual Asset Management, stated in an interview with Investing.com that “the Fed can raise rates to 5% or 6% it is not going to affect their down payments.” The majority of U.S. households have a 30-year fixed rate mortgage. “New homebuyers are affected, but they are a very small segment of the population… and their impact on the economy is much, much smaller.”
More Volatile currency and other risks in China
Goldman Sachs says that investor bets on a Fed cut are premature, so the dollar could strengthen in the coming months. The market is undervaluing the Fed’s and FCI’s necessary hikes and tightenings to ultimately reduce core inflation pressures.
