Goldman Sachs on USD - FJElite

The drift higher in the dollar returned yesterday despite inflation misses earlier in the week as well as oil prices stabilising. At the margin US data was supportive but we would discount this as a significant catalyst. Additionally, while the drift may be as a result of more macro agnostic / one-off flows (which we do not rule out), we do think there are two strong fundamentals that remain USD supportive and have maybe been overlooked. Firstly, as GS FX Research have consistently flagged, the ToT impact of persistently higher energy prices (which is especially the case with refined products) has historically taken time to properly be reflected in FX prices - as shown back in 2022. Secondly, Fed pricing beyond the very frontend has remained sticky, supported by fairly consensus cautious, if not hawkish, rhetoric from Fed speakers this week ahead of the blackout period - Jefferson, Logan, Schmid all consistent with this view overnight. I would also add that with US breakevens remaining under significant pressure, US real rates have remained well supported. For today’s session, we think UoM survey data will be interesting, especially inflation expectations, but expect G10 ranges to hold. Beyond the very near-term, GS Trading expect carry to drive returns in FX which implies USD stronger vs. funders, but weaker vs. procyclical pairs, and with FX vols on the lows (final chart below), we like using options to express these views.