Goldman Sachs: USD decoupling unlikely to last

Analysts at Goldman Sachs provide a commentary on the valuation of the greenback, in wake of Trump’s presidency and large US current account deficit.

Key Quotes via eFX:

“Markets are worrying over the "true" intentions of the new administration. Concern that President Trump is mercantilist and may talk down the Dollar has seen the Dollar fall notably below the 2-year rate differential, as markets have priced a protectionist risk premium.”

“Our last FX Views argued that this decoupling is unlikely to last, given that the correlation of the Dollar with front-end differentials is one of the more stable relationships out there.”

“That said, today we examine the persistent and large US current account deficit, given that it is often cited as evidence that the Dollar is overvalued and needs to fall.”

“We argue that the current account deficit, which stands at 2.6 percent of GDP, is a flawed metric on which to make a valuation judgment for the broad Dollar.”