The US dollar came under pressure last week as risk assets rebounded. However, analysts at Goldman Sachs feel the greenback could soon go up as the historic rally is not quite over.
The dollar index, which tracks the value of the greenback against majors, fell from 103 to 98.27 last week, as the S&P 500, Wall Street’s equity index, rose more than 10 percent, possibly on the back of the unprecedented fiscal and monetary lifelines launched by the US and other governments across the globe.
However, in the West, the economic fallout from the outbreak is only just beginning and a further equity market drawdown looks inevitable, according to Zach Pandl, strategist at Goldman Sachs.
Key quotes
The real trade-weighted Dollar has perhaps 3-5% upside from the latest highs, in our view. This would take the Dollar close to its peak during the last bull market (which ended in February 2002) and key crosses (e.g. EUR/USD and USD/CAD) to levels which might prompt debate over US-reacted intervention.
Although intervention has been rare in recent years, the disorderly surge could call for a policy response.
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