As the Federal Reserve begins a period of ease, Goldman Sachs lowers its expectations for the US dollar.

Following a significant interest rate cut by the Federal Reserve, Goldman Sachs has lowered its expectations for the US dollar against multiple currencies. The bank expects the attractiveness of the US dollar to weaken as US Treasury yields decline, leading to a gradual weakening of the dollar. Subsequently, the bank has raised its expectations for several major currencies including the Euro, Pound, and Yen. Last week, the Federal Reserve initiated a loosening cycle by cutting rates by 50 basis points, aiming to boost the US labor market. The bank stated that this decision shows that US policymakers are willing to be more proactive in addressing economic downturn compared to other countries. Goldman Sachs strategists, including Kamakshya Trivedi, wrote in a report, "Over time, this balance should mean a softer dollar, but we still expect this to be a gradual and uneven process." "We also continue to believe that dollar overvaluation will not be eroded quickly or easily, but the threshold has been lowered slightly." With the new view on the US dollar, Goldman Sachs is now more bullish on the Pound, expecting it to rise from $1.32 to $1.40 in 12 months. This level was last seen in 2021 and is also one of the highest forecast levels on Wall Street. The bank's support for the Pound is mainly based on the larger interest rate cuts by the US and Eurozone central banks compared to the Bank of England, which is not eager to accelerate its pace of rate cuts. While many strategists and investors believe that the Bank of England will eventually need to catch up with rate cuts, Goldman Sachs believes that the UK's economic growth remains strong. The strategists wrote, "Support for the Pound comes from risk beta values, solid growth momentum, and a patient Bank of England. The market has already priced in the risks of a US economic recession, benefiting risk assets and pro-cyclical currencies like the Pound." In addition, the bank has also raised its estimates for the Euro, now expecting it to rise to $1.15 in 12 months, instead of $1.08. Within the same timeframe, the Yen exchange rate is predicted to rise to 140 against the Dollar, compared to the previous forecast of 150. Goldman Sachs has also raised its expectations for the Yuan, but still believes it will weaken from current levels. The bank predicts the Yuan to rise from 7.40 to 7.25 against the Dollar in 12 months. Goldman Sachs' forecast of a broad weakening of the Dollar contrasts sharply with that of Deutsche Bank strategists, who believe that the Federal Reserve's rate cuts will not have a significant impact on shaking the Dollar's high-yield status. Deutsche Bank foreign exchange strategist, led by George Saravelos, wrote in a report, "We believe the Fed's pricing is too mild, the market underestimates the positive risk around Trump's victory, so we prefer to buy the Dollar."