Goldman Sachs: Japan’s FX intervention is losing effectiveness as the dollar stays firm and Brazil’s real faces election risk
A Goldman Sachs global foreign-exchange report analyzes the yen, U.S.
A Goldman Sachs global foreign-exchange report analyzes the yen, U.S. dollar, pound sterling, Brazilian real, emerging-market carry trades, Swiss franc and Indonesian rupiah.
The report says Japan’s intervention is becoming less effective, while the dollar is expected to remain firm. Sterling is under medium-term pressure, the real is likely to be volatile because of election risk, and the preferred emerging-market carry currency is the Mexican peso. The report says the Swiss franc’s weakness makes it suitable as a funding currency, while Indonesia’s rupiah outlook has been lowered following the governor’s resignation. Goldman Sachs also raised its forecasts for the dollar against the rupiah across multiple forward periods.
The report’s reasoning is that Japanese intervention can only buy time, while fundamentals ultimately determine the direction of the market. It attributes the dollar’s resilience to its interest-rate differential advantage and inflows of capital related to artificial intelligence. The report also adjusted forward points for the currencies, raising some and lowering others, but did not provide the numerical levels in the supplied source.
The note says market pricing already reflects a substantial degree of intervention risk, but that changes in fundamentals and the policy mix will be the decisive factors. It identifies the potential trading implications as cautiously selecting carry-trade currencies, with a preference for the Mexican peso, and funding currencies, with the Swiss franc as a preferred choice, while dynamically balancing risk exposure as macroeconomic conditions change.
In its directional assessment, the report views the outlook as favorable for the dollar because of its resilience, for the Mexican peso as the preferred emerging-market carry currency, and for the Swiss franc as a funding currency. It views the outlook as unfavorable for sterling because of medium-term pressure, for the rupiah because its outlook was lowered, and for the real because of election risk. The report says intervention is already largely priced into the market, although fundamental variables continue to evolve.
The catalysts identified by the report are signals from Bank of Japan policy meetings, the progress of Brazil’s elections and the policy direction of Indonesia’s new governor.
The report says Japan’s intervention is becoming less effective, while the dollar is expected to remain firm. Sterling is under medium-term pressure, the real is likely to be volatile because of election risk, and the preferred emerging-market carry currency is the Mexican peso. The report says the Swiss franc’s weakness makes it suitable as a funding currency, while Indonesia’s rupiah outlook has been lowered following the governor’s resignation. Goldman Sachs also raised its forecasts for the dollar against the rupiah across multiple forward periods.
The report’s reasoning is that Japanese intervention can only buy time, while fundamentals ultimately determine the direction of the market. It attributes the dollar’s resilience to its interest-rate differential advantage and inflows of capital related to artificial intelligence. The report also adjusted forward points for the currencies, raising some and lowering others, but did not provide the numerical levels in the supplied source.
The note says market pricing already reflects a substantial degree of intervention risk, but that changes in fundamentals and the policy mix will be the decisive factors. It identifies the potential trading implications as cautiously selecting carry-trade currencies, with a preference for the Mexican peso, and funding currencies, with the Swiss franc as a preferred choice, while dynamically balancing risk exposure as macroeconomic conditions change.
In its directional assessment, the report views the outlook as favorable for the dollar because of its resilience, for the Mexican peso as the preferred emerging-market carry currency, and for the Swiss franc as a funding currency. It views the outlook as unfavorable for sterling because of medium-term pressure, for the rupiah because its outlook was lowered, and for the real because of election risk. The report says intervention is already largely priced into the market, although fundamental variables continue to evolve.
The catalysts identified by the report are signals from Bank of Japan policy meetings, the progress of Brazil’s elections and the policy direction of Indonesia’s new governor.