Almost six months after Goldman Sachs Group Inc. recommended shorting the dollar, it’s calling it quits on the trade.
In a note titled “tactical retreat,” Goldman’s currency team closed its recommended short greenback position against a basket of Group-of-10 commodity currencies, including the Australian and New Zealand dollars. The firm joins hedge funds and other investors in capitulating on bearish dollar bets after surging Treasury yields triggered a rebound in the U.S. currency, capsizing one of the world’s most crowded macro trades.
“Although we still expect these currencies to appreciate versus the dollar over the coming quarters, firm U.S. growth and rising bond yields may keep the greenback supported over the short-term,” strategists including Zach Pandl wrote in a note Friday. “After a choppy few months we are closing our recommended dollar short trade.”
What was a near-consensus call at the end of last year has come undone as improving economic data and an 80 basis point surge in 10-year Treasury yields boosted the dollar’s appeal relative to peers. The Bloomberg Dollar Spot Index has jumped nearly 3% this year.
Since Oct. 9 -- the date the Goldman strategists issued a short recommendation on the greenback against two baskets of developed and emerging currencies -- the gauge has fallen about 1%.
The trade would have netted a 5% gain since its inception, though it has been “roughly flat” since the start of the year, the strategists wrote.
Read More: Macro Traders Couldn’t Care Less About Dollar Debasement Fears
Still, opportunities to short the dollar may re-emerge as Europe’s pandemic situation improves, the Goldman team said. It sees the euro gaining about 3% in the next three months to the $1.21 level, before testing $1.28 in a year.
The common currency traded around $1.1750 on Monday.
“Clear evidence that Europe’s Covid situation is getting under control would likely warrant fresh dollar short recommendations,” the strategists wrote.
— With assistance by Cormac Mullen
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April 05, 2021 at 01:22PM
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