By Garfield Reynolds
(Bloomberg) — Goldman Sachs Group added its voice to a
chorus of expectations of a weaker dollar after the US central
bank’s clearest sign yet that interest-rate cuts are coming.
The bank made sweeping changes to its exchange-rate
forecasts after the Federal Reserve signaled a more-rapid move
to “non-recessionary” interest-rate cuts, Goldman analysts
including Michael Cahill wrote in a note on Friday.
Ahead of the meeting, hedge funds and other large
speculators switched to a net short position against the dollar
for the first time since September, according to Commodity
Futures Trading Commission data as of Dec. 12.
The Bloomberg Dollar Spot Index dropped 1.2% last week and
touched a four-month low after the Fed held interest rates and
projected 75 basis points of reductions in 2024. Markets rushed
to price in as many as six cuts, and Goldman’s economists moved
to anticipate five.
“Our new forecasts incorporate more dollar weakness than
before,” the Goldman analysts wrote. “The biggest revisions to
our forecasts are in the rate-sensitive currencies that would
have struggled under a ‘higher for longer’ rates regime,” such
as the yen, the Swedish krona and the Indonesian rupiah, they
wrote.
The combined position for bets across major currencies
shifted to a net 26,355 contracts bearish on the dollar in the
week ending last Tuesday, the CFTC data show. The biggest shifts
were for the yen, with bets on dollar gains versus the Japanese
currency dropping by more than 20%, and for the British pound,
where wagers on dollar declines almost doubled.
The yen soared 2% last week against the dollar, while the
krona added 1.9%. Those were the biggest gains among G-10
currencies outside of Norway’s krone, which jumped more than 4%
as its central bank unexpectedly lifted its key deposit rate.
A weaker dollar next year is the majority view among
analysts surveyed by Bloomberg across the Group-of-10 nations
and emerging markets, yet Goldman previously only anticipated a
“shallow” depreciation, forecasting the dollar index to drop 3%
over the next 12 months in their 2024 currency outlook published
Nov. 10.
Goldman now sees the yen little changed at 142 per dollar
in six months, significantly stronger than its prior estimate of
155. It also boosted projections for the Australian and New
Zealand dollars by at least 9% over the same horizon.
“We see the most ‘room to run’ from current levels in pro-
cyclical currencies that should benefit from the Fed loosening
its grip on financial conditions and adding to the case for a
soft landing,” the strategists wrote. That group includes the
British pound, the South Korean won and the South African rand.
–With assistance from Alice Atkins.
To contact the reporter on this story:
Garfield Reynolds in Sydney at [email protected]
To contact the editors responsible for this story:
Tian Chen at [email protected]
Toby Alder, Tan Hwee Ann
