Goldman Sachs is Bearish on the US Dollar, Yuan Falls
US Dollar has been trading in a tight range over the past few months after falling sharply during the second quarter. While the USD index is down more than 4% year to date against the basket of six major currencies, Goldman Sachs suggests investors place short positions on the greenback as the firm sees limited upside in the final quarter this year.
The US Dollar index is currently trading around 93.25 level. The analysts at Goldman Sachs claims that elections polls results have lowered the uncertainty and the coronavirus vaccine is also likely to be launched by the year-end.
All these factors will reduce the volatility and improves investor’s focus towards riskier assets such as equities and commodity-related currencies.
“To be sure, there are important risks: we are most uncertain about the length of the vote count (especially for the Senate) and the equity market reaction to a ‘blue wave’. But the wide margin in current polls reduces the risk of a delayed election result, and the prospect for near-term vaccine breakthroughs may provide a backstop for risky assets,” Goldman Sachs analysts wrote.
Chinese Yuan, on the other hand, fell back against the US dollar as the Chinese government started interfering in the currency markets. Yuan soared to two years high against the US dollar last week.
China’s central bank announced that they are removing the reserve requirements for some foreign exchange forwards, the biggest sign that indicates Beijing is seeking to reduce their currency value.
The government believes stronger yuan could negatively impact its exports and imports.
The second-largest economy has reported record imports and exports for the month of September. Its exports grew almost 10% year over year in September.
Moving on to Europe, the common currency fell to $1.17 level against the US dollar. The euro traded around $1.18 at the beginning of the week due to weaknesses in the US dollar.