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.