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May 13 - 09:55 AM

Goldman Sachs: USD Into this Week's US CPI Print

By eFXdata  —  May 13 - 08:30 AM

Synopsis:

Goldman Sachs provides insights on the upcoming US CPI report for April, suggesting potential relief in inflation data and discussing the implications for USD and broader market dynamics.

Key Points:

  • US CPI Expectations: Goldman Sachs anticipates that the April CPI could show signs of relief, aligning with expectations for a moderation in inflation rates.
  • US Data and Monetary Policy: Recent US economic data have shown some softening, particularly relative to high expectations. This development is crucial as it aligns with Fed Chair Powell’s criteria for potential rate cuts, which include not only inflation metrics but also labor market conditions.
  • Impact on Currency Markets: The perceived balance in risks due to the recent US data softening could limit the strength of the divergence trade, especially in policy-sensitive currency pairs like EUR/USD.
  • Strategy for Risk and Currency Markets: The environment is expected to remain favorable for risk assets and carry trades, especially if inflation shows the anticipated relief. Goldman Sachs recommends funding these positions from low-yield currencies like EUR and JPY rather than the USD.

Conclusion:

This week's US CPI report is pivotal and could confirm a shift towards easing inflation pressures. While the data may provide a supportive backdrop for risk assets and carry trades, the broader implications for the USD are seen as balanced. Goldman Sachs advises caution in using the USD to fund risk positions, suggesting alternative currencies with lower yields for better risk management.

Source:
Goldman Sachs Research/Market Commentary

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