Goldman Sachs: US Dollar Has Broader Room to Appreciate

Goldman Sachs believes that the appreciation of the dollar is greater than the market currently estimates. Goldman Sachs analysts Michael Cahill and Lexi Kanter wrote in a note Tuesday that credit conditions in the U.S. have not tightened as initially feared, while economic activity in Europe and elsewhere has been weaker than expected earlier this year.

“There may be broader room for dollar appreciation in the near term than the market expects,” they wrote. We believe that the overall dollar depreciation this year will be more insignificant than is generally believed. "

A gauge of the greenback's strength has risen more than 1% so far in May as markets adjusted expectations for the timing of the Fed's rate cut, and the debt-ceiling standoff has also boosted the greenback's safe-haven appeal. Prior to this, the dollar had depreciated for two months.

They said there were not enough factors to warrant continued euro appreciation and that the policy paths of the Fed and Europe were not that divergent. They maintained their forecast for a euro-dollar exchange rate of 1.10 by the end of 2023. 

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