Goldman Sachs recently shared its perspective on the euro, suggesting that its upside potential is limited due to similarities in macroeconomic conditions in the eurozone and other regions. The firm believes that the divergence in market pricing between these areas should reduce over time.
Interestingly, the recent data seems to slightly diverge – while inflation in the United States has remained more persistent than anticipated, it has declined at a faster rate in the Euro area. Moreover, the United States has experienced resilient hard economic data in contrast to the Euro area’s less stellar performance at the start of the year, despite the Euro area having much lower gas prices.
This leads Goldman Sachs to anticipate that the Federal Reserve will suggest a higher peak for the funds rate, whereas the European Central Bank (ECB) will likely signal it's continuing on its pre-established path but with less ground to cover.
Goldman Sachs maintains that these variations are mainly short-term fluctuations around a more common narrative. The firm believes that ultimately, the macroeconomic picture is not extremely divergent and that sharp market movements in either direction offer opportunities for tactical plays against them. In the near term, Goldman Sachs expects the Euro to depreciate further and recommends short exposure to EUR/CAD as a tactical move
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