The ‘true’ peak of the US dollar is still a few quarters away -Goldman

NEW YORK, Nov 18 (Reuters) – Investors worried about when the dollar is likely to peak may have to wait a few more quarters, Goldman Sachs said in a research note on Friday.

Based on historical cycles, Goldman said, the dollar’s peaks are generally associated with a “trough in measures of U.S. and global growth” and easing by the Federal Reserve.

A dollar top would still appear to be “several quarters away,” Goldman said, noting that he doesn’t expect the Fed to embark on easing until 2024. He added that U.S. growth is unlikely to touch the background anytime soon.

The US investment bank noted that the dollar has been supported by stable economic activity in the United States and continued high inflation despite a series of sharp rate hikes. The Fed has acknowledged that the concept of a “tight” policy rate is a moving target and estimates of the cyclical neutral rate have risen.

Goldman economists now expect a longer up cycle and an even higher terminal rate, in line with the Fed.

The Eurozone, on the other hand, still faces serious challenges related to energy shortages, while smaller G10 economies are more sensitive to higher rates or changes in policy rates, partly due to the increase in variable rate mortgages.

By contrast, Goldman said the US economy has a better economic outlook and may be less sensitive to higher rates, which should support the dollar.

Goldman’s three-month forecast calls for the euro to hit $0.94 against the dollar, down about 9% from the current level. On Friday, the euro was stable at $1.0356.

Goldman said the eventual dollar spike should coincide with better prospects for global growth and new capital flows abroad.

Still, Goldman said the dollar’s top could come sooner than expected if the Fed halts rate hikes, a path to a more stable energy supply emerges in Europe or China reopens its economy more quickly.

Reporting by Gertrude Chavez-Dreyfuss; Editing by David Gregorio

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Carol N. Valencia