Goldman Axes Short Dollar Call as US Yields Spoil Bet

Photographer: Michael Nagle / Bloomberg

Almost six months after Goldman Sachs Group Inc. had recommended by shorting the dollar, it stops trading.

In a note entitled “tactical withdrawal,” Goldman’s currency team closed its recommended short greenback position against a basket of 10-group commodity currencies, including the Australian and New Zealand dollar. The firm joins hedge funds and others Investors who capitulated to bearish dollar bets after rising Treasury yields sparked a rebound in the US currency, capsizing one of the world’s busiest macro trades.

“While we still expect these currencies to rise against the dollar in the coming quarters, solid US growth and rising bond yields may support the greenback in the near term,” strategists including Zach Pandl wrote in a note on Friday. “After a few choppy months, we close our recommended dollar short trade.”

What was one near-consensus call at the end of last year has been reversed as the economy is improving data and an 80 basis point rise in 10-year Treasury yields strengthened the dollar’s appeal against peers. The Bloomberg Dollar Spot Index is up nearly 3% this year.

Since October 9 – the date when Goldman strategists briefly recommended the greenback against two baskets of developed and emerging currencies – the dollar meter has fallen about 1%.

The transaction would have delivered a 5% gain since its inception, although it has been “more or less flat” since the start of the year, the strategists wrote.

Read More: Macro Traders Can’t Care About Fears of Dollar Outrage

Still, opportunities may emerge to short the US currency as the pandemic situation in Europe improves, the Goldman team said. It sees the euro rise about 3% over the next three months to the $ 1.21 level before testing $ 1.28 in a year.