GS are revising their EUR/USD forecasts:
- EUR/USD to 1.25 (from 1.17)
- in a 12 month horizon
Nearer term:
GS cite:
- the world is now dealing with a new crisis, which is revealing certain positives about the European system-e.g. the capacity of its health care infrastructure, the stickiness of firm/employer relationships, and arguably aspects of its politics and media-and revealing related negatives about the United States.
- Many of the world's best companies are located in the US, bond yields are still marginally higher than in the Euro Area, and the country's economy has proven resilient through many shocks over a long period of time. For these reasons the Dollar is very unlikely to "crash", and we could only envision the Euro displacing aspects of the Dollar's global role over long periods of time.
- But we are not confident that the US asset market dominance over the last ten years will continue-and at least from a GDP growth standpoint our economists think Europe will actually outperform. Plus, it's important to remember that European markets kept pace with the US for a long stretch after the single currency's introduction-perhaps suggesting Europe's lackluster returns recently may have been a byproduct of the particular macroeconomic environment that followed the 2008-09 recession
- Over the coming year we expect investors to take a more balanced approach to the international opportunity set, resulting in a reduction of long-standing USD overweights and portfolio inflows into other major markets, including the Euro Area.
