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Goldman Sachs Forecasts Dollar Headwinds in 2024 Despite Robust US Economy



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Goldman Sachs Group Inc. strategists, led by Kamakshya Trivedi, predict a potential dimming outlook for the dollar in 2024.

Despite the greenback’s current strength, up approximately 1.6% this year, the strategists foresee a nuanced depreciation rather than a sharp downturn, citing a better-balanced global economy over the coming year.

The Federal Reserve’s commitment to maintaining elevated interest rates to combat inflation contributes to the dollar’s resilience.

The strategists acknowledge above-consensus views on US growth and higher yields, indicating a high bar for total return prospects.

While anticipating a challenging ascent for the euro to $1.10 in the next year, supported by economic recovery, they highlight risks such as weaker growth affecting sovereign credit and potential energy price shocks.

Additionally, they foresee the yen facing disappointment in Japan’s policy normalization progress, predicting a fall to 155 per dollar in the next six months.

In the case of the pound, the near-term outlook suggests added pressure due to cable’s sensitivity to real rates.

Limited upside is expected as long as the Bank of England remains cautious about restarting rate hikes, with the pound anticipated at $1.18 over the next three months.

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Dollar Sees Uptick, But November Nears Steepest Monthly Decline in a Year



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The dollar made modest gains on Thursday, but it still faces the prospect of marking its most significant monthly decline in a year.

This trend is largely attributed to heightened speculation that the Federal Reserve will refrain from further rate hikes, a sentiment reinforced ahead of a crucial inflation report scheduled for later in the day.

The dollar index, gauging the U.S. currency against six counterparts, managed to climb 0.35% to 103.18, rebounding from Wednesday’s low of 102.46—the weakest level since August 11.

Despite this slight recovery, the index is on track to conclude November with a 3.3% slump, fueled by mounting expectations of a Fed interest rate cut in the first half of 2024.

Mohamad Al-Saraf, Associate of FX and Rates Strategy at Danske Bank, noted, “The key drivers in November for the dollar weakness have been the benign inflation data and the loosening signs of the labor market.”

Market focus intensifies as investors await the crucial Personal Consumption Expenditure (PCE) price index, the Fed’s targeted measure of inflation, scheduled for release on Thursday.

Christopher Wong, Currency Strategist at OCBC, emphasized that the PCE data would offer insights into the persistence of the disinflation trend.

As U.S. rates futures markets price in over 100 basis points of rate cuts for next year, commencing in May, the dollar’s path remains contingent on inflationary signals and cues from Federal Reserve Chair Jerome Powell’s speech on Friday.

The global economic landscape, underscored by weaker data in Germany, Spain, and France, amplifies the volatility in currency markets, leaving investors closely monitoring central bank responses.

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Dollar Hits Four-Month Low as Rate Cut Speculations Grow



Forex Weekly Outlook March 6 - 10

The US dollar extended its decline, reaching the lowest level since early August as swap traders increased bets on a Federal Reserve interest rate cut as early as May.

The Bloomberg Dollar Spot Index registered its fifth consecutive day of losses, reflecting concerns about a potential recession and dovish comments from the Fed that are prompting investors to speculate on a reversal of the central bank’s aggressive tightening cycle.

Global Head of Currency Strategy at Brown Brothers Harriman & Co., Win Thin, emphasized the dollar’s vulnerability, stating, “The dollar remains vulnerable until we see a shift in market expectations for the Fed, and that may be a 2024 story.”

He added, “With the dollar rally stalled, it will take some firm real sector data to challenge the current dovish Fed narrative.”

Amid these developments, the New Zealand dollar led gains among Group-of-10 peers, propelled by the central bank’s warning of potential rate hikes in the coming year.

Simultaneously, the Japanese yen strengthened to a two-month high as concerns about elevated US rates diminished.

The prevailing narrative suggests that unless there is a notable change in market expectations for the Fed, the dollar is likely to remain under pressure, with potential shifts anticipated in 2024.

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Dollar Declines Amid Rising Optimism on Fed Rate Cut Prospects

Global Markets React to Growing Confidence in Fed’s Cautious Stance



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The dollar faced a fourth consecutive day of decline, setting it on course for its worst month since November last year.

This trend is bolstered by increasing optimism among traders regarding the Federal Reserve’s trajectory toward rate cuts.

The South Korean won and Thai baht led the gains in Asia, with the won experiencing its most significant jump in almost two weeks.

Simultaneously, Treasuries stabilized after a previous rally, with yields on the two-year note, sensitive to the Fed’s rate path, hitting a one-week low.

The market sentiment reflects a broader positive outlook, with Wall Street forecasters becoming more upbeat about the prospects for the coming year.

Improved investor sentiment and reduced expectations of a recession have fueled this optimism, along with the belief that the Fed has completed its rate-hiking cycle, prompting a rally in the S&P 500.

Liz Ann Sonders, Chief Investment Strategist at Charles Schwab, cautioned about the potential consequences of rate cuts, stating, “If the market is right in expecting that rate cuts could start maybe even at the end of the first quarter, in the first half, that would require to some degree a weaker economic and labor market backdrop than what we’re seeing right now.”

Despite the positive market sentiment, concerns about the economic and labor market backdrop persist.

The Bloomberg US Treasury Index has turned positive for the year, reflecting slowing inflation and measured job growth that triggered a rally and sent yields plummeting.

Traders are closely monitoring economic data this week, including the Fed’s preferred measure of underlying inflation.

Also, corporate earnings reports from prominent firms such as Crowdstrike Holdings Inc., Salesforce Inc., and Dell Technologies Inc. will provide insights into the evolving landscape of cybersecurity priorities and corporate expenditure.

The Fed’s expressed concern about inflation persisting above the 3% target adds a layer of complexity to the market’s reaction, as analysts anticipate potential pushback against implied easing and the recent rally in bonds and shares.

As investors navigate through these evolving dynamics, gold remains stable near its highest level since May, supported by lower Treasury yields and expectations of impending Fed interest rate cuts.

Meanwhile, oil prices extend their decline as the market weighs the possibility of deeper output cuts from OPEC+ against signs of supply outpacing demand.

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