Goldman Sachs flags shrinking supply shock in USD outlook, sees delayed dollar weakness - Investing.com
Goldman Sachs has highlighted a diminishing supply shock impacting the outlook for the U.S. dollar, predicting a delay in any impending dollar weakness. Their analysis suggests that while the dollar has been resilient, ongoing changes in supply dynamics could alter this trend in the medium term.
What the desk is arguing
Goldman Sachs posits that a shrinking supply shock may be on the horizon, suggesting a possible correction in the dollar's strength as we move forward. They argue that while the dollar has demonstrated robustness, the adjustments in supply chains and market dynamics imply a delayed yet substantial weakening of the currency may be forthcoming.
Additionally, the firm points out that economic indicators and geopolitical tensions have kept demand relatively stable, counteracting some of the anticipated vulnerabilities. This nuanced understanding indicates that the dollar's strength may not be as resilient in the long run as current valuations suggest.
Where it sits in our coverage
Our current consensus target for the EUR/USD pair stands at 1.075, with a firm spread showing confidence in a gradual appreciation of the euro against the dollar over the next quarter. Goldman’s viewpoint aligns closely with our analysis, hinting at a similar premise regarding the dollar’s vulnerability under shifting market conditions.
For further context, other firms such as Barclays and JPMorgan have also expressed varied predictions based on similar underlying economic principles. Specific targets include:
- **JPMorgan**: 1.10 (Mar26) - **Barclays**: 1.08 (Mar26) - **Credit Suisse**: 1.09 (Mar26)
How other firms see it
Various firms have echoed these sentiments, with some alignment in dollar weakness projection. **Goldman Sachs**’s perspective is supported by several analysts projecting a slowdown in dollar strength, raising broader questions about the dollar's future trajectory.
On the contrary, firms like **BofA** maintain a more cautious stance, suggesting robust support for the dollar in the near term, reflected in their target of 1.04 for the EUR/USD pair.
- **BofA**: 1.04 (Mar26) - **Morgan Stanley**: 1.05 (Mar26)
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Goldman Sachs sees diminishing supply shocks impacting the dollar's strength.
- 02Predicted dollar weakness may be delayed, affected by new supply dynamics.
- 03The firm's analysis aligns with broader market insights on USD volatility.
Market implications
The analysis suggests that traders may want to position for a potential shift in U.S. dollar valuation as supply dynamics change. Awareness of these trends could be critical in forecasting shifts in currency pairs, particularly against the euro.
Risks to this view
The primary risk stems from unexpected economic data that could reinforce dollar strength, counteracting Goldman’s forecasts. Additionally, geopolitical events or monetary policy shifts could also disrupt anticipated trends.
Sources & References
How we cover this story