Goldman Sachs analyzes effective hedges in the foreign exchange market in scenarios where US stocks and yields fall, highlighting the most reliable currency positions. Safe havens JPY and CHF, along with shorting MXN and AUD, are identified as effective hedges. However, the costs associated with certain strategies favor shorting AUD or GBP due to their favorable combination of responsiveness and lower interest rates.
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Goldman Sachs identifies long yen and Swiss franc positions, along with short Mexican peso and Australian dollar positions, as effective FX hedges in equity and earnings downturn scenarios. However, given the high cost of some hedging strategies, short positions in Australian dollars or British pounds are recommended for their cost-effectiveness and strong response to economic volatility.
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