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The dollar may fall to its 2018 lows due to the increasing likelihood of Joe Biden winning the US election and progress on a coronavirus vaccine, according to Goldman Sachs Group Inc.
“Risks are skewed toward dollar weakness, and we see relatively low odds of the dollar’s most positive outcome: a Mr. Trump victory combined with a significant vaccine delay,” strategists like Zach Pandl wrote in a note Friday. .
“A ‘blue wave’ election in the United States and favorable news on the vaccine schedule could return the DXY index and the trade-weighted dollar to their 2018 lows.”
The ICE US dollar index has fallen more than 3% so far this year, trading slightly above the 93 level on Monday as investors reacted to the unprecedented monetary stimulus related to the Federal Reserve pandemic and the very low interest rates.
The indicator traded below 89 in 2018, a level that would imply a further drop of more than 4%.
Goldman joins companies such as UBS Asset Management and Invesco Ltd in predicting a weaker dollar as Biden extends his lead over President Donald Trump in less than three weeks by Election Day.
It advises investors to short the dollar against a volatility-weighted basket made up of the Mexican peso, the South African rand, and the Indian rupee.
Strategists also suggest buying the euro, Canadian and Australian dollars against the dollar.
The firm keeps long recommendations open for the yuan through unhedged Chinese government bonds.
“The wide margin in current polls reduces the risk of a delayed election result, and the prospect of near-term vaccine advances may provide support for risky assets,” they wrote.
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