Investing.com – The US dollar has been trading calmly against major currencies lately, and these tight ranges are likely to remain for a while longer, according to Goldman Sachs, with a wait for a divergence to take place.
At 05:20 EDT (09:20 GMT), the dollar index, which tracks the US currency against a basket of six other currencies, was trading unchanged at 104.330, flat after losing about 1% last week in the wake of US inflation data. The weak.
“We believe there is limited room for the market to squeeze dollar short positions on inflation news,” Goldman Sachs analysts said in a May 17 note.
“After all, while the print was mostly consistent with expectations, it was not on target. As a result, news does not change policy expectations much beyond reinforcing recent rhetoric.”
The subsequent market response was reminiscent of the currency market's reaction after the FOMC meeting in March, when the “dovish points” response stopped not because of new data, but instead because the currency market was still a relative game, and the fundamentals of the dollar had not changed much, The investment bank added.
This time, we believe the rise in front-end interest rates appears more consistent with cyclical concerns rather than dovish expectations.
“This is important for foreign currencies because there is a narrow path for the dollar to decline on a broad basis when growth declines,” the bank added. “This is especially true in the current environment where faster cuts by the Fed are likely to be met with easier policy abroad as well.”
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