U.S. dollar: More stability with Fed tapering plans priced in - Goldman Sachs

FXStreet reports that in its latest research report, Goldman Sachs' analysts said they expect the U.S. dollar stability while citing the market’s response to Fed Chair Jerome Powell’s tapering hints and their signal of monetary policy adjustments, marked in June.

"Following Fed Chair Powell's Jackson Hole speech, the July FOMC meeting minutes, and a variety of public comments from other officials, we now have a clearer sense of the Fed's QE tapering plans (our economists expect a November announcement, December start, and September 2022 conclusion to the process)."

"Shifting Fed expectations have supported the dollar over the last two months. But with tapering now largely priced in, and the currency stronger as a result, following through with the process should not drive the Dollar higher from this point forward."

"We, therefore, expect the greenback to stabilize over the coming weeks, and possibly depreciate against certain crosses with attractive domestic fundamentals."

"We forecast broad Dollar depreciation over time on our expectation that the global economic recovery will continue and that slowing domestic growth and lower inflation will allow the Fed to remain on hold until Q3 2023."

"But for that trend to take hold, markets may require clearer signs that delta variant outbreaks are behind us and that US inflation pressures have come down."

"Following the June FOMC meeting, we argued that the broad USD could appreciate an additional 1.5-3.0% over the near-term should markets continue to price Fed expectations in a hawkish direction."