Goldman Pushes Back Against Pushback on Short-Dollar Call

(Bloomberg) -- Goldman Sachs Group Inc. is sticking to its guns in calling for the dollar to depreciate, despite criticism that its recommendation’s usefulness has come and gone.

Goldman advised shorting the dollar in early January, accounting for the Federal Reserve’s pivot away from steady gradual increases in the benchmark interest rate. While the greenback indeed dropped thereafter, it has rebounded this month as other central banks adopted less hawkish stances of their own. Goldman says the dollar will fall anew.

“One common pushback to this view is that, with the Fed shift now behind us, would it take another dovish surprise to push the dollar down from here?” Michael Cahill, a Goldman economist in London, wrote in a note Wednesday. “We think not.”

Goldman Pushes Back Against Pushback on Short-Dollar Call

The Fed’s “dovish shock” is still set to reverberate, because policy maker sensitivities have fundamentally shifted, in Goldman’s view. Chairman Jerome Powell and his colleagues will probably be increasingly responsive to negative news, and be more relaxed about any need to react to positive surprises with tighter policy, the thinking goes.

History shows the currency could still appreciate against this backdrop if the U.S. suffers “pronounced recession concerns” or global growth as a whole falls to “worrying levels,” triggering a haven bid for the greenback, Cahill wrote. A second key scenario is if American growth “significantly outperforms,” making the Fed’s perceived shift short-lived, he wrote.

“Ultimately, we think both of those scenarios are unlikely,” Cahill wrote. Goldman continues to recommend shorting the Dollar Index, targeting 93. It was at 97.285 as of 8:58 a.m. in London. Goldman’s stop-loss: 97.50.

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