Goldman Says You Might Want To Ditch The Dollar

Goldman Says You Might Want To Ditch The Dollar

over 3 years ago2 mins

Mentioned in story

With less than a month to go until US elections, investment bank Goldman Sachs predicts a “blue wave” would accelerate declines in the dollar’s value – but things may be looking up for the British pound 💷

What does this mean?

Just six months ago, the dollar’s international value was at its highest in three years – with the US currency its strongest against the pound in particular since 1985. But a lot’s changed since then. The dollar’s global punch weakened 10%, hitting its lowest in two years last month.

The US Dollar Index has seen some ups and downs over the last 20 years
The US Dollar Index has seen some ups and downs over the last 20 years

The drop was likely due in part to rising US government debt – something Goldman Sachs, in research out this week, sees increasing further should the Democratic Party triumph across the board in November’s elections. Higher corporate taxes are on the Democratic agenda, but so too is higher spending – including, potentially, an additional $2 trillion coronavirus stimulus package.

Whether the blue wave materializes remains to be seen – which is also true of the UK’s vexed Brexit trade deal as final departure from the European Union looms nearer. But Goldman thinks negotiations are now headed in the right direction. With an orderly withdrawal likely to tempt long-term investors back to Blighty – as well as remove the spectre of negative interest rates – the bank reckons pound-based pessimism looks overdone 🇬🇧

Why should I care?

For what it’s worth, Goldman recommends shorting the euro versus the pound, with a target rate of 0.87 and a safety “stop” at 0.925; exchange-traded investments like the WisdomTree Short EUR Long GBP offer a less fiddly alternative.

Goldman’s latest currency forecasts in full (Source: Goldman Sachs Investment Research)
Goldman’s latest currency forecasts in full (Source: Goldman Sachs Investment Research)

As readers of our Currency Trading Pack will know, however, foreign exchange is a risky and complex business. Fortunately, a blue wave may have more straightforward ramifications for investors. According to Goldman, the effect of (eventually) higher corporate taxes on US stocks would likely be outweighed by the boost higher spending – and, potentially, less trade uncertainty – should give to the American and global economies. While the effect would vary across sectors, a blue wave would, all else equal, see Goldman raise its forecasts for US stock prices… 🤑

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