Loading ...The dollar’s climb to a seven-month high has Goldman Sachs Asset Management concerned further appreciation could undermine the U.S. economy and deter the Federal Reserve from raising interest rates in December.
The Fed may hold fire if the trade-weighted measure of the greenback climbs to levels last seen in January, the asset manager said in a note to clients Oct. 28. The gauge is at its highest level since March 1. While Goldman said it still expects tightening in December, it has increased its bullish bets on the Mexican peso, Malaysian ringgit and Indian rupee that benefit from higher commodity prices and “decent global growth.”
“The Fed has expressed concerns about the dollar strength given the impact on financial conditions,” Goldman said. “Tight financial conditions contributed to the Fed’s decision to delay its first rate hike and we believe that similar concerns may arise if the dollar appreciates back to its January levels.”
The Bloomberg Dollar Spot Index, which measures the U.S. currency’s performance against a basket of 10 major counterparts, advanced 0.1 percent as of 9:25 a.m. in Tokyo from Friday when it touched the highest level since March 16. The index has advanced 2.3 percent in October, poised for its biggest monthly gain since May. The yen, which is set for its worst month since May, was little changed at 104.75 per dollar.
The Bloomberg U.S. Financial Conditions Index, which tracks the overall level of financial stress in the U.S. money, bond, and equity markets, has had negative readings since late July and was at minus 0.39 Monday. A negative value indicates tighter financial conditions.
The Mexican peso was headed for a fourth day of losses, dropping 0.2 percent to 19.0177 per dollar and was the worst performer in a basket of 16 major currencies. It fell 0.8 percent Friday after the Federal Bureau of Investigation said, less than two weeks before the U.S. presidential election, that it is re-opening an inquiry into Hillary Clinton’s use of private e-mail while secretary of state.
The peso has tended to weaken on evidence Republican nominee Donald Trump’s electoral prospects are improving.