Goldman Sachs: Do FOMC minutes confirm USD bottom?


19 May, AtoZForex, London – Since Goldman Sachs argued about the Dollar bottom, the USD has risen significantly, aided yesterday by April FOMC meeting minutes. In the investment bank’s opinion, yesterday’s price action is informative in two important respects.

Post FOMC minutes confirm USD bottom

First, if something repetitive as Fed minutes (since FOMC minutes are just a more detailed description of an already happened event) can boost the USD nearly 1%, it implies that underlying bullish pressure on the Dollar is substantial, which “helps put in perspective our forecast for USD to rise 15 percent through 2018,” Goldman Sachs added.

Second, the meeting minutes underline just how volatile Fed communications have been, including the dovish September FOMC meeting, and the one when the Fed turned hawkish in October etc.

Post FOMC minutes confirm USD bottom Post FOMC minutes confirm USD bottom (click to zoom in)

Above all, Goldman Sachs believes that the process of monetary policy normalization is difficult. “Given that there is underlying appreciation pressure on the Dollar, too hawkish a message could send the USD on a tear and, by weakening the economy, undermine the rationale for being hawkish in the first place,” Goldman Sachs noted.

This could be one reason why recent FOMC meetings have been so divided in opinions, swinging back and forth, with the dovish surprise in September, the hawkish shift in October, and so forth (see Exhibit 2). In other words, Goldman Sachs argues that the Fed may quite simply be volatile and complicated as it embarks on a difficult path of normalizing US monetary policy, which argues for de-emphasizing messages from individual Fed meetings and focusing on the big picture.

The big picture, as Goldman Sachs sees it, “is that the Dollar will be a lot stronger three years from now than it is currently.”

3 Reasons to Fade USD Gains

Post FOMC minutes confirm USD bottom, or do they? BNP Paribas argues against further Dollar strengthening. The investment bank would “favour fading these gains in the USD vs. non-commodity currencies for three reasons.”

1- The Fed minutes make clear that a June hike is data-dependent and BNP Paribas expects that “data will continue to be, quite mixed.”

2- “Most” FOMC members that pointed to improving US economy may not include key decision makers, including Chair Yellen or Mr. Dudley. Yellen will speak on May 27.

3- The risk environment may not be robust enough to tolerate pricing for a June hike. The S&P500 continues to decline and USD gains could add to pressure on WTI and risk sentiment.

Also see: April FOMC minutes: Brexit concerns

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