Goldman Sachs suggests that the EUR should now be considered the funding currency of choice, particularly in comparison to the CHF and JPY, given current market conditions and expectations for currency performance.
Key Points:
- The firm utilizes its market regimes framework to analyze FX performance based on yield direction and rate volatility, indicating that the current environment favors the EUR.
- Their baseline forecasts predict higher equities, stable yields, and reduced rate volatility, which could lead to renewed weakness in the Dollar and cyclical outperformance for both G10 and emerging market currencies.
- Despite the potential for near-term Dollar strength—especially if US equities reflect a stronger domestic growth outlook compared to European counterparts—the overall sentiment leans towards a longer-term weakening of the Dollar.
- In light of these conditions, Goldman Sachs advocates for the EUR as the preferred funding currency, favoring it over the traditionally safer CHF and JPY.
Conclusion:
As market dynamics shift and uncertainties loom, Goldman Sachs identifies the EUR as a more attractive funding option, potentially enhancing its appeal against the backdrop of stable yields and positive equity performance. This perspective underscores the changing landscape in currency markets amid evolving economic conditions.
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