According to Goldman Sachs, the dollar showed little change on Monday after ending a three-week winning streak. However, despite this pause, the strength of the U.S. economy suggests that it may be premature to expect the bears to regain control over the dollar.
The U.S. dollar index, which measures the value of the greenback against a basket of six major currencies, remained unchanged at 103.96.
The ongoing trend of a robust U.S. economy, combined with weaknesses in Europe and China, continues to favor the dollar in the short term. The conditions contributing to this trend would need to diminish before there is a possibility of modest dollar depreciation in the medium term, according to Goldman Sachs.
The remarks came shortly after the release of a robust monthly jobs report on Friday, which is consistent with a trend observed for a significant portion of the year. Goldman Sachs notes that the “hard data” in the United States has consistently outperformed expectations, while the “soft survey data” has generally been weaker than expected.
The Federal Reserve has taken note of the strong data, resulting in a shift in their language from a pause to a “skip” in rate hikes, acknowledging the resilience of the economy. Around 75% of traders anticipate the Fed to skip rate hikes in the upcoming meeting later this month, with approximately 50% expecting the central bank to resume rate hikes in July, according to Investing.com’s Fed Rate Monitor Tool.
However, some individuals in the Wall Street believe that a skip in June could lead to an extended pause for the remainder of the year. Morgan Stanley, for example, anticipates that the Fed Chair’s press conference will heavily emphasize a prolonged period of holding rates steady.
If the Fed indeed proceeds with skipping rate hikes, it could bolster investor sentiment towards risk assets and potentially pose a threat to the safe-haven status of the dollar. Nevertheless, Goldman Sachs suggests that any downward pressure on the dollar is likely to be limited by the strong macro performance of the United States.