Goldman Sachs’ latest exchange rate forecast suggests that if Eurozone growth remains modestly positive, as expected by their economists, the Euro (EUR) could strengthen to reach a year-end target of 1.10 against the US Dollar (USD).
Goldman Sachs’ currency analysts emphasize that the US Dollar’s overall trajectory is influenced by changes in Eurozone growth dynamics and concerns about China.
They note that if Eurozone growth falls short of expectations or worries about China escalate, it could lead to a bullish scenario for the dollar, limiting gains for other currencies.
However, if the Eurozone maintains its modest growth, Goldman Sachs’ year-end target for EUR/USD at 1.10 remains plausible, benefiting other currencies as well.
Recent US economic data aligns with Goldman Sachs’ stance on the US Dollar, with improvements in labor market conditions and disinflation. This supports the expectation that the Federal Open Market Committee (FOMC) will maintain its current monetary policy in the coming months. Wage growth in the US, while still high, raises questions about the need for tighter monetary policies beyond September.
On Monday, the dollar index found stability above the 104 mark, extending its two-day upward trend. This came as investors continued to scrutinize the future of US interest rates in light of the most recent economic data.
The latest US jobs report revealed an unexpected rise in the unemployment rate to 3.8% in August, the highest figure since February 2022 and surpassing the market’s expectations of 3.5%. Additionally, the economy added 187,000 jobs in the previous month, surpassing the projected 170,000 but remaining below the 200,000 benchmark for the third consecutive month.
This pattern suggests a gradual easing of labor market conditions. Furthermore, while ISM data indicated improved US manufacturing activity in August, it still remained in a contractionary phase for the tenth straight month. As a result, market sentiment leans towards the Federal Reserve keeping interest rates unchanged this month, with a growing belief that there won’t be any further rate hikes this year.
In a broader context, Goldman Sachs predicts a subdued US Dollar outlook, driven by a restrained Federal Reserve, slowing US economic growth, and a risk-tolerant sentiment, potentially leading to a weaker dollar against pro-cyclical currencies.
As we approach year-end, the Euro’s performance will play a critical role in the currency markets, influencing the direction of the US Dollar. Any fluctuations in Eurozone growth or ongoing concerns about China will be pivotal factors to watch.
In summary, while global factors are at play, the Eurozone’s growth resilience and concerns about China will significantly shape the future outlook for the US Dollar.
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