According to Goldman Sachs, steady growth in the US economy and weak economic activity in China has so far prevented large sales of the US currency.
"We do not see significant reasons to short the greenback broadly until early 2020. Nevertheless, the risks for the USD are shifted downward, on the basis that there will be a more stable recovery of the eurozone economy, a significant reduction in US tariffs on imports from China and/or a significant reduction in the Federal Reserve interest rate," they said.
"Two components of the US currency can be distinguished: the domestic dollar, which behaves like an ordinary currency, and the international dollar, which reflects the global role of the currency. Accelerating global economic growth next year should lead to some downward pressure on the international dollar, although domestic dollar drivers look more positive. These factors, when combined together, indicate only a moderate decrease in the trade-weighted USD exchange rate by about 1.5–2.0% in 2020," experts said.
They expect that next year a number of currencies may surpass the dollar, but given the current carry (high dollar rates), their recommendation is to: finance longs from Asian low-income currencies or from the euro early next year.
At the same time, among the G10 currencies, Goldman Sachs prefers the pound against the expectation that the results of the early parliamentary elections, which will be held in the United Kingdom in December, will pave a clear path for the Brexit process.
Bank strategists advise taking short positions in EUR/GBP with the target at 0.82 and with a stop at 0.88.
"The primary risk is the suspended Parliament, which will tighten uncertainty over Brexit and push the Bank of England to lower interest rates. However, a number of possible government coalitions are likely to insist on close working relations with the EU. This gives reason to believe that we are unlikely to return to the lows in the pound sterling," they said.
