Comments from Federal Reserve Chairman Jerome Powell boosted the changes that the central bank will pause interest-rate increases, wrote Goldman Sachs strategists in a note. Powell cited the events of 2016, when rates were kept unchanged through most of the year due to concerns about slow growth in China.
The potential hold presents a chance for the greenback to drop.
“Combined with net softer US data for December, we think a more data-dependent Fed creates space for further dollar downside,” the strategists led by Zach Pandl wrote.
“We are therefore recommending short DXY (or a basket with approximately these weights), with an initial target of 93.0 and stop of 97.5.” The note added further.
The DXY index hasn’t been below 93—Goldman’s target level—since May, as the currency has strengthened on the back of robust American economic data. It reached a peak level at the stop of 97.5 in November. The gauge ended last week at 96.179, a consecutive third week decline, as it failed to hold gains from the extremely strong monthly US payrolls report.