Goldman Sachs The Markets “The most attractive hedge”
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Apr 25, 2025 Brian Dunne, Head of Americas Foreign Exchange Options Trading at Goldman Sachs Global Banking & Markets, shares insights on the declining U.S. dollar and its implications for traders. He discusses the impact of recent fiscal policies and forecasts a potential 10% devaluation of the dollar in the FX market. Brian highlights an attractive hedging strategy by shorting the dollar against the yen, as well as the importance of monitoring upcoming economic news that may reshape market dynamics. It's a deep dive into currency trends and investment tactics.
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Reasons Behind Dollar Drop
- The US dollar has depreciated roughly 10% from pre-inauguration levels in a short period, marking significant volatility.
- Key factors include improved German fiscal outlook, softer US tariff power, and downgraded US growth forecasts relative to global growth.
Dollar Overvalued; Decline Can Persist
- The dollar's decline can persist due to hedging flows as investors reduce unhedged US asset exposure.
- Fair value models indicate the dollar may still be overvalued by 10 to 15%.
Market Expects More Dollar Fall
- Market consensus expects further dollar depreciation on a trade-weighted basis, but timing remains uncertain.
- Data and US policy consistency are critical factors to watch for accelerating dollar moves.