Month: August 2021

Goldman Sachs expect the Fed to begin its taper with a November announcement

• December start
• and September 2022 conclusion to the process

On the USD:

• Shifting Fed expectations have supported the dollar over the last two months. But with tapering now largely priced in, and the currency stronger as a result, following through with the process should not drive the Dollar higher from this point forward. 
• We therefore expect the greenback to stabilize over the coming weeks, and possibly depreciate against certain crosses with attractive domestic fundamentals. 

On risks to their outlook, GS say several factors could prevent more sustained Dollar weakness

• including surprising strength in this week’s nonfarm payroll report
• stubbornly high US inflation
• and/or the September FOMC meeting ‘dot plot’, which could show as many as four additional rate hikes in 2024

We forecast broad Dollar depreciation over time on our expectation that the global economic recovery will continue and that slowing domestic growth and lower inflation will allow the Fed to remain on hold until Q3 2023. But for that trend to take hold, markets may require clearer signs that delta variant outbreaks are behind us and that US inflation pressures have come down.

Forex news from the European trading session – 26 August 2021

Headlines:

Markets:

• EUR leads, CHF lags on the day
• European equities lower; S&P 500 futures flat
• US 10-year yields up 0.8 bps to 1.353%
• Gold down 0.1% to $1,789.32
• WTI down 0.8% to $67.83
• Bitcoin down 3.7% to $46,910

FX was largely muted on the session as the dollar kept steadier amid some light pushing and pulling, not amounting to much change ahead of North American trading.

EUR/USD trades in a narrow range between 1.1760-70 while GBP/USD saw little action around 1.3740-50 levels on the session.

Commodity currencies are also little changed (only a touch softer), nothing to suggest any major change to price action over the past few days.

The overall risk mood was more tepid as European indices dial back following yesterday’s gains while US futures are also not showing much poise amid some trepidation at record levels going into Jackson Hole tomorrow.

10-year Treasury yields are keeping its advance from yesterday, helping to see USD/JPY push to 110.20 before sticking closer to 110.00 currently.

As the week begins to wind down, the focus is turning to Jackson Hole tomorrow and there might not be much in it besides more pushing and pulling before the main event.