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A ‘not awful’ read on King Dollar from Goldman Sachs – And even if you are of the ‘always do the opposite to GS’ persuasion, you at least have to know what it is they are doing!!
Summary:
The U.S. dollar is on a roll. Even as the American economy shows signs of cooling, the greenback has soared against major currencies from Europe’s 19-member euro to the Chinese renminbi. An index of the dollar versus other major currencies is trading around a two-decade high.
Investment tends to flow into higher yielding currencies, and the greenback has rallied in part because the Federal Reserve is hiking interest rates more aggressively than some other central banks as it seeks to contain inflation, according to Kamakshya Trivedi, head of Global Foreign Exchange, Interest Rates and Emerging Markets Strategy Research. The dollar, which is seen as a haven during turmoil, has also risen as concerns grow that the shock in energy prices will stall economic growth in many parts of the world.
But Trivedi says there are signs that the dollar’s rise is in its “later innings,” as it nears extreme levels against currencies like the Japanese yen or the British pound, which has traded at its weakest level against the greenback since Margaret Thatcher was the U.K. prime minister. We spoke with Trivedi about the risks to emerging-market currencies from the dollar’s rally and his outlook for the world’s reserve currency.