Goldman Sachs reported that the U.S. dollar had firmed on Tuesday morning following a series of weekend developments, with energy prices rising and equity markets selling off. The bank said those moves coincided with dollar strength and a divergence across major and emerging market currencies.
According to Goldman Sachs, market behavior appears to be driven more by shifts in terms of trade than by a uniform change in risk sentiment. Within the G10 complex, the Norwegian krone and the Canadian dollar registered relative outperformance, while the euro and the Japanese yen lagged peers. In emerging markets, Goldman Sachs said the South African rand and the Indian rupee showed similar patterns to those observed among the G10, and the Hungarian forint stood out after weekend election developments.
The bank warned that foreign exchange markets are likely to remain sensitive to headline-driven sentiment in the near term. However, it added that, over time, differences in terms of trade and the associated economic consequences will play a larger role in currency valuation.
Goldman Sachs drew a parallel to the shock in 2022, noting that foreign exchange markets took longer to fully price in the economic fallout from that episode than the effect on broader risk sentiment and volatility. In other words, the bank suggested FX adjustments to economic realities can lag movements in market volatility and risk appetite.
On that basis, Goldman Sachs said it remains bearish on the Philippine peso (PHP), the Thai baht (THB) and the Indian rupee (INR). The firm cited those currencies' exposure to energy imports and what it described as weak external balance and growth outlooks as the rationale for the negative stance. The bank also indicated that the extent of recent retracement in the euro may be somewhat premature.
Clear summary
Goldman Sachs sees a stronger dollar after weekend events, interprets recent FX moves as terms-of-trade driven rather than purely risk-driven, and maintains a negative view on PHP, THB and INR because of energy import exposure and fragile external positions.
Key points
- Dollar strengthened Tuesday after weekend developments amid higher energy prices and equity weakness.
- G10 performance was mixed - NOK and CAD outperformed; EUR and JPY underperformed.
- Goldman Sachs retains bearish positions on PHP, THB and INR due to energy import exposure and weak external balance and growth outlooks.
Risks and uncertainties
- Near-term FX moves remain sensitive to headlines - this can amplify short-term volatility for currency and financial markets.
- Shifts in energy prices could disproportionately affect energy-importing currencies and related sectors.
- Political events, such as the Hungarian election cited by Goldman Sachs, can produce idiosyncratic currency reactions that complicate broader FX trends.