Goldman Axes Short Dollar Call as US Yields Spoil Bet

Photographer: Michael Nagle / Bloomberg

Almost six months after Goldman Sachs Group Inc. recommended selling the dollar, it is closing trade.

In a note entitled “tactical retreat,” Goldman’s monetary team closed its recommended US dollar short against a basket of commodity coins from the Group of 10, including Australian and New Zealand dollars. The firm joins hedge funds and others Investors, capitulating to bearish bets on the dollar, after the increase in Treasury yields, triggered a recovery of the US currency, becoming one of the most competitive macro trades in the world.

“While we still expect these currencies to appreciate against the dollar in the coming quarters, steady US growth and rising bond yields can keep the dollar supported in the short term,” wrote strategists, including Zach Pandl, in a note in the Friday. “After a few hectic months, we are closing our dollar short trading recommendation.”

What was a almost consensus call at the end of last year was undone due to the economic improvement the data and an 80 basis point increase in 10-year Treasury yields boosted the dollar’s appeal against its peers. The Bloomberg Dollar Spot Index jumped almost 3% this year.

Since October 9 – the date on which Goldman strategists issued a short recommendation on the dollar against two baskets of developed and emerging currencies – the dollar indicator has fallen by about 1%.

The trade would have generated a gain of 5% since its beginning, although it has been “practically stable” since the beginning of the year, the strategists wrote.

Read more: Macro traders could not care less about fears of devaluation of the dollar

Still, opportunities to short sell the US currency may reappear as Europe’s pandemic situation improves, the Goldman team said. He sees the euro gaining about 3% over the next three months, to the $ 1.21 level, before testing $ 1.28 in a year.