Synopsis: Goldman Sachs adopts a cautious stance on the USD, indicating that the market seems to be in a 'wait-and-see' phase following a significant reassessment. Strong US growth and employment data currently prevent the Dollar from weakening, and looking forward, a "higher-for-longer" economic environment would likely bolster the Dollar.
Detailed Analysis:
Current Market Sentiment: The market appears to have moved into a phase of reflection and anticipation. This sentiment is attributed to the considerable reassessment that has recently taken place. The policy anchor, which offers stability and guidance, further reinforces this perspective.
Dollar's Stance: The strength of US economic data, particularly concerning growth and employment, currently hinders the Dollar's potential for depreciation. Unless there's clear evidence that this robust data will negatively impact the ongoing disinflationary trend, the Dollar's strength is unlikely to wane.
Future Prospects: Goldman Sachs suggests that if the economic environment remains "higher-for-longer," it would further support the Dollar. If circumstances demand the US economy to maintain restraint over an extended period, other currencies might face challenges due to policy spillovers.
Impact on Asia: Policymakers in Asia might need to reconsider their stance on the Dollar's cycle. If they were to adjust or remove their anchors, especially after a period where appreciation pressures have been mounting and artificial stability maintained, it could introduce more volatility in the market.
Conclusion: Goldman Sachs emphasizes a cautious approach towards the USD, pointing out the current market's wait-and-see sentiment. They believe that the current strong economic data from the US acts as a barrier for the dollar to weaken and anticipate a potentially supportive environment for the Dollar looking ahead.
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