USD JPY - FUNDAMENTAL ANALYSISForeign exchange analysts at Goldman Sachs still expect that the US Dollar to lose ground over 2023 as a whole, but expect this will take longer than expected previously due to US and global developments.
It notes; “Our underlying view for FX markets this year is that we are likely to see only a “bumpy deceleration” for the Dollar, because slack in the US economy is still limited, and we are still “waiting for a challenger.”
The 3-month Dollar to Yen (USD/JPY) exchange rate has been revised higher to 140 from 132 previously while the 6-month forecast has been revised to 135 from 125.
The 12-month forecast remains at 125.0.
From a longer-term perspective, Goldman still expects that the dollar will lose ground, but it considers that the short-term perspective has changed slightly.
It adds; “we think the recent rally in the broad Dollar more appropriately reflects the fine balance facing currency markets at the moment.”
Goldman points out that the US economy has performed more strongly than expected after the Silicon Valley Bank collapse in March.
According to Goldman; “In the US, recent data on credit conditions have been a bit better than feared. And cost pressures have eased somewhat but remain a top priority, so that a number of Fed officials have said they still see some risk that rates may ultimately have to rise further.”
Another key element for exchange rates is that dollar selling necessitates the buying of another currency.
In this context, Goldman is less confident that there are attractive alternatives. The narrative earlier in the year was of a strong rebound in China and notable resilience in the Euro-Zone.
Both these elements have come into doubt over the next few weeks.
The Bank of Japan has also not engaged in any shift in monetary policy with the ceiling for the 10-year yield held at 0.5%.
The delay in tightening policy has undermined the yen in global markets.
Goldman adds; “Dollar depreciation usually coincides with strong activity in the rest of the world, not US underperformance. We think recent developments all support this view, and should also support some further Dollar strength over the near term.”
The 3,6 and 12-month Euro to Dollar (EUR/USD) exchange rate forecasts are unchanged at 1.05,1.05 and 1.10 respectively.
