Wednesday, 06 May, 2015

Dollar Tantrum Screams Louder as Goldman Sachs Says Time to Buy

(Bloomberg) — Goldman Sachs Group Inc. said the dollar’s steepest tumble since 2011 won’t last and investors can profit if they buy now as U.S. growth will improve. A gauge of the dollar fell 3 percent in April, the first monthly decline since June and the biggest since October 2011. Lower-than-forecast data, including first-quarter gross domestic product, fueled speculation the Federal Reserve will keep U.S. interest rates lower for longer. This week’s payroll report is among economic data the Fed uses to gauge the timing of a rate increase. Goldman Sachs predicts the world’s largest economy will grow 2.9 percent this quarter, after almost grinding to a halt in the previous three months. “After the perfect storm in March — a dovish Fed and weak payrolls — price action around last week’s GDP disappointment was a howl of disapproval, something akin to the ‘The Scream’ by Edvard Munch,” Goldman Sachs analysts, including Robin Brooks, the chief currency strategist in New York, wrote in a report. “Foreign-exchange markets appear to be throwing a ‘tantrum’.” The dollar will likely appreciate 18 percent to 95 cents versus the euro and about 8 percent to 130 yen in 12 months, the analysts wrote. That’s more bullish than the consensus calls for the greenback to reach $1.03 per euro and 126 yen by March 31. The dollar fell 0.4 percent to $1.1225 per euro at 7:10 a.m. in London and was little changed at 119.85 yen. Japanese markets are closed Monday through Wednesday for holidays. Dollar Gauge The Bloomberg Dollar Spot Index, a measure of the U.S. currency against 10 major peers, fell 0.2 percent to 1,166.54 after slipping 0.4 percent Tuesday when a report that showed the trade deficit expanded to the widest in more than six years. Goldman isn’t alone among strategists who expect the dollar to resume gains against its major peers on prospects the recent data deterioration will reverse, prompting the Fed to boost borrowing costs this year for the first time since 2006. “Rate-hike expectations have been pushed too far out — when these realign the dollar bull trend will resume, particularly against the yen, less so against pound and the euro,” said Thomas Averill, a managing director in Sydney at Rochford Capital, a currency and rates risk-management company. ‘Alarm Bells’ The worsening trade deficit may signal U.S. growth will keep slowing, especially as the Fed is no longer undertaking quantitative easing to push down borrowing costs, according to Stan Shamu at IG Ltd. “The trade deficit did raise alarm bells,” said Shamu, a markets strategist in Melbourne. “Does this mean we’ll see U.S. growth falter even more? In an environment where QE is finished and now we are looking at hiking, naturally, this will weigh on the dollar because everybody’s been looking for a case for a lift-off, and the timing’s been slowly pushed further out.” U.S. economic growth slowed to an annual rate of 0.2 percent in the first quarter, from 2.2 percent in the previous three months, the Commerce Department said April 29. U.S. employers added 230,000 workers in April, according to a Bloomberg survey before the report on May 8. The 126,000 gain in March was the smallest in more than a year. “The dollar has been in a consolidation phase in the past two months since it peaked in mid-March,” said Joseph Capurso, a strategist at Commonwealth Bank of Australia in Sydney. “The dollar bull trend will return when the market expects imminent U.S. rate hikes.” The dollar is the best-performing major developed currency during the past year, gaining 18 percent, according to Bloomberg Correlation-Weighted Indexes. The euro weakened 7.4 percent and the yen fell 2.1 percent. Disclaimer The information contained in this communication from the sender is confidential. It is intended solely for use by the recipient and others authorized to receive it. If you are not the recipient, you are hereby notified that any disclosure, copying, distribution or taking action in relation of the contents of this information is strictly prohibited and may be unlawful. This email has been scanned for viruses and malware, and may have been automatically archived by Mimecast Ltd, an innovator in Software as a Service (SaaS) for business. Providing a safer and more useful place for your human generated data. Specializing in; Security, archiving and compliance. To find out more visit the Mimecast website.