Goldman Sachs: US dollars will rise with 15% in the next two years

After hitting one-year low last week, the dollar rose nearly 1%, despite disappointing payroll data on Friday. Goldman Sachs think that the greenbacks rally indicates that market expectations for economic growth and rate hikes have plunged quite abruptly.

Robin Brooks, chief currency strategist at Goldman, said that they stay bullish on the dollar remains. Strategists from Societe Generale SA and Brown Brothers Harriman & Co. says that recovery of the dollar depends on further economic data.

The greenback saw its biggest advance in six months last week, paring its 2016 decline to 4.1 percent. The dollar fell for a third straight month in April, the longest stretch since before it embarked on a 20 percent rally in July 2014, on speculation the Fed will take a slower path to raising rates as it factors in headwinds from slowing global economic growth.

While Fed policy makers have recently talked up the potential for rate-hikes in the near term, reiterating that June’s FOMC meeting will be "live" and forecasting two potential rate increases this year, markets aren’t convinced.

Traders have already heavily discounted the likelihood of any Fed action before the fall, predicting just a 6 percent change of a rate hike next month -- evidence, Goldman Sachs says, that markets are increasingly looking away from the Fed and to other central banks to set the dollar in motion.

“In a way, the Fed has been something of a sideshow for the dollar recently,” Brooks wrote.

The Bank of Japan surprised markets last month by keeping policy unchanged, defying bets for further policy stimulus. The move came as a surprise to the majority of economists surveyed by Bloomberg who had projected some action from the central bank in response to a strengthening in the yen that has
cast a shadow over prospects for higher wages and investment.

European Central Bank President Mario Draghi expressed optimism about inflation and the economy after meetings that ended April 21, surprising investors who speculated policy makers would signal more monetary stimulus. Economists surveyed by Bloomberg have predicted further monetary easing to come.

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