srclogistic.com.

After the Federal Reserve's significant rate cut, Goldman Sachs Group has lowered its expectations for the US dollar against a variety of currencies.

The bank anticipates that the US dollar will gradually weaken as the decline in US Treasury yields diminishes the attractiveness of the currency.

Subsequently, the bank has raised its expectations for several major currencies, including the euro, the pound, and the yen.

Last week, the Federal Reserve initiated an easing cycle by cutting interest rates by 50 basis points, aiming to boost the US labor market.

The bank stated that this decision indicates that US policymakers are willing to tackle economic downturns more aggressively than other countries.

Goldman Sachs strategists, including Kamakshya Trivedi, wrote in a report: "Over time, this balance should mean a weaker dollar, but we still expect this to be a gradual and uneven process."

Advertisement

"We also continue to believe that the dollar's high valuation will not be eroded quickly or easily, but the threshold has been lowered a bit."

Due to the new outlook on the dollar, Goldman Sachs is now more bullish on the pound, expecting it to rise from the previous $1.32 to $1.40 in 12 months.

This level last occurred in 2021 and is also one of the highest forecast levels on Wall Street.

The bank's view on the pound is mainly based on the larger interest rate cuts by the US and European Central Banks, while the Bank of England is reluctant to accelerate the pace of rate cuts.

Although many strategists and investors say that the Bank of England will eventually need to catch up with the pace of rate cuts, Goldman Sachs believes that the UK's economic growth remains robust.

The strategists wrote, "Support for the pound comes from risk beta, solid growth momentum, and a patient Bank of England.

The market has already factored in the risk of a US economic recession, benefiting risk assets and cyclical currencies like the pound."

In addition, the bank has also raised its estimates for the euro, currently expecting it to rise to $1.15 in 12 months, instead of $1.08.

The institution forecasts that the yen exchange rate will rise to 140 yen per US dollar within the same period, compared to the previous forecast of 150 yen per US dollar.

Goldman Sachs has also raised its expectations for the Chinese yuan but still believes that it will weaken from the current level.

The bank expects the yuan-to-US dollar exchange rate to rise from the previous 7.40 to 7.25 within 12 months.

Goldman Sachs' view that the dollar will weaken across the board contrasts sharply with the strategists at Deutsche Bank, who believe that the Federal Reserve's rate cuts will not have a significant impact on shaking the dollar's high-yield status.

Deutsche Bank's foreign exchange strategists, led by George Saravelos, wrote in a report: "We believe the Federal Reserve's pricing is too dovish, and the market has underestimated the positive dollar risks surrounding a Trump victory, so we prefer to buy dollars."