Goldman Sachs Group Inc., led by Kamakhya Trivedi, said the outlook for the US dollar in 2024 will be bleak, but a strong US economy and high yields may support the valuation of the dollar.
The US dollar has retreated from its 2023 high last month, but is still rising by approximately 1.6% this year. With the Federal Reserve hinting that it will maintain high interest rates for a longer period of time to curb inflation, it is moving towards its third consecutive annual increase.
These strategists wrote in their annual currency outlook released last Friday: "The US dollar remains highly bullish, and we expect the global economy to return to equilibrium within the next year, which should put pressure on the US dollar for some time
However, their above consensus views on US growth and higher returns "should set a high threshold for the overall return outlook," they wrote.
Strategists predict that unlike the sharp depreciation of the US dollar seen after the signing of the Plaza Agreement in the 1980s, they expect the US dollar to experience a relatively shallow decline. They stated that the risk of their views being 'more biased towards the US dollar will be stronger for a longer period of time' if it proves that other economies are unable to cope with the level of restrictions required by the US.
Goldman Sachs strategists also expect:
For the euro, the path to $1.10 in the next year will be "challenging", with a current exchange rate of approximately $1.07, supported by the recovery of economic growth in the second half of 2024, as the impact of higher energy prices gradually weakens. The main risks include the impact of weaker growth on sovereign credit and additional energy price shocks.
For the Japanese yen, the market is "disappointed" with Japan's progress towards policy normalization. Goldman Sachs predicts that the yen will fall from its current level of around 152 to 155 against the US dollar within the next six months, pointing out that "the yen is difficult to fight against the macroeconomic situation".
