EDITOR NOTE: Goldman Sachs and UBS strategists are bearish the US dollar as Biden’s lead over President Trump increases toward the November election. They recommend shorting the dollar against a basket of currencies should Biden secure a victory. The bias is clearly within the fiat system; none of the recommendations considering the respective risks of each currency; all of the recommendations aimed at swapping severe weakness for relative weakness. Exchanging one weakness for another is not a legitimate hedge, nor is it a safe haven. Plain and simple.
The dollar may tumble to its lows of 2018 on the rising likelihood of Joe Biden winning the U.S. election and progress on a coronavirus vaccine, according to Goldman Sachs Group Inc.
“The risks are skewed toward dollar weakness, and we see relatively low odds of the most dollar-positive outcome -- a win by Mr. Trump combined with a meaningful vaccine delay,” strategists including Zach Pandl wrote in a note Friday. “A ‘blue wave’ U.S. election and favorable news on the vaccine timeline could return the trade-weighted dollar and DXY index to their 2018 lows.”
The ICE U.S. Dollar Index has fallen more than 3% so far this year -- trading just over the 93 level on Monday -- as investors reacted to unprecedented pandemic-related monetary stimulus from the Federal Reserve and rock-bottom interest rates. The gauge traded below 89 in 2018, a level which would imply a further slide of more than 4%.
Goldman joins the likes of UBS Asset Management and Invesco Ltd. in predicting a weaker dollar as Biden extends his lead over President Donald Trump with less than three weeks to election day. It recommends investors short the dollar against a volatility-weighted basket consisting of the Mexican peso, South African rand and Indian rupee.
The strategists also suggest buying the euro, Canadian and Australian dollars against the greenback. The firm is keeping open long recommendations for the yuan through unhedged Chinese government bonds.
“The wide margin in current polls reduces the risk of a delayed election result, and the prospect for near-term vaccine breakthroughs may provide a backstop for risky assets,” they wrote.
Originally posted on Bloomberg