EUR/$ to move lower on economic and monetary policy divergence – Goldman Sachs

In view of analysts at Goldman Sachs, their 12-, 24- and 36-month forecasts for EUR/$ stand at 1.00, 0.95 and 0.90, respectively, and rate differentials are still the main driver for their view.

Key Quotes

“Periodically, however, other factors have emerged to drive EUR/$, notably in mid-2012 when break-up risk was acute and ECB President Draghi made his now famous “whatever it takes” speech, essentially pre-announcing the OMT program. This narrowed Euro periphery risk premia, driving EUR/$ far above what was justified by rate differentials.”

“We conclude that deposits across the Euro periphery have held up well, through the many ups and downs of recent years, so that recent developments are unlikely to spark material outflows. The notable exception to this picture is Greece, where rising odds of Euro exit in late-2011 and mid-2015 caused substantial deposit flight. But what is notable, again, is that this deposit flight did not feed into contagion to the rest of the Euro periphery. Our base case therefore remains for EUR/$ to move lower on economic and monetary policy divergence.”