Narrow dollar range likely to remain for now – Goldman

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Investing.com – The US dollar has been trading flat against major currencies lately and according to Goldman Sachs, these tight ranges are likely to remain for some time and divergence will have to wait.

At 05:20 ET (09:20 GMT), the dollar index, which tracks the greenback against a basket of six other currencies, was trading unchanged at 104.330, holding steady after losing about 1% last week on feeble data about inflation in the USA.

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“We believe the market has limited ability to exert pressure on the dollar based on inflation information,” Goldman Sachs analysts said in a May 17 note.

“Finally, while the prints were mostly as expected, they were off target. As a result, this news does not significantly change the political outlook, other than reinforcing recent rhetoric.”

The subsequent market reaction was reminiscent of the FOMC’s currency reaction after the March dovish response, not because of fresh data, but because the exchange rate is still a relative game and dollar fundamentals have not changed much, the investment bank added.

We believe that this time the augment in interest rates will be more consistent with cyclical concerns rather than dovish expectations.

“This matters for the currency because there is a narrow path for overall dollar depreciation if growth weakens,” the bank added. “This is especially true in the current environment, when faster Fed cuts would likely mean easier policy abroad as well.”

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