Goldman Sachs Warns of Increasing Risk Pointing to US Dollar Collapse

As risks continue to mount regarding the continued rise in coronavirus cases in the US and the timeline of a viable vaccine, coupled with the upcoming presidential election, the chances of the US currency plummeting is is becoming increasingly plausible.

In fact, Investment banking giant Goldman Sachs has issued a recommendation to investors, suggesting that they take short positions against the US dollar. Goldman’s analysts foresee low odds for a positive outcome for the dollar by the end of the year, which would be fuelled by the supposed diminishing likelihood of an electoral win for Donald Trump, and an increased delay in vaccine progression.

The analysts pointed to a growing number of indicators that are forecasting the chances of a Democratic clean sweep across the US, which would see a blue wave in the White House, Senate and House, at 60%. “In our view, a ‘blue wave’ US election and favourable news on the vaccine timeline could return the trade-weighted Dollar and DXY index to their 2018 lows,” notes Co-Head of Global FX, Rates and EM Strategy Zach Pandl.

Pandl elaborated that some of the most forefront risks include the uncertainty surrounding the duration of the election vote count, as well as the equity market’s reaction to a ‘blue wave.’ However, the widening gap in current election polls will likely diminish the risk of a prolonged election result, and a significant vaccine breakthrough in the near future could serve as a backstop for risky assets.

As a result, Goldman suggested to investors that they short the dollar against a volatility-weighted basket that comprises of the South African rand, the Mexican peso, and the Indian rupee. The analysts also recommended that investors begin purchasing the euro, Australian dollars, as well as Canadian dollars against the US greenback. In addition, Goldman is continuing to keep open long recommendations for the yuan via unhedged Chinese government bonds.

Information for this briefing was found via Goldman Sachs. The author has no securities or affiliations related to this organization. Not a recommendation to buy or sell. Always do additional research and consult a professional before purchasing a security. The author holds no licenses.