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Dollar set for sharp decline, Goldman forecasts
The dollar will embark on a sharp decline over the next 12 months, Goldman Sachs forecast on Wednesday, as policy makers in Washington look poised to press the trigger on another round of printing money.
By Richard Blackden
Published: 6:00AM BST 07 Oct 2010
While the US economy is growing again, the recovery has failed to "catch fire" in the words of one Federal Reserve official.
The investment bank expects the dollar to drop to $1.79 against the pound in six months and $1.85 in 12 months. Sterling closed at $1.5891 in London yesterday. The euro won’t be spared either, with the dollar’s slump forcing it to $1.50 six months from now and $1.55 in a year’s time. Powered by President Obama’s stimulus package and a rebound in inventories, the US recovery peaked in the final three months of last year and has been slowing ever since.
As the summer delivered a diet of weak economic data, the conviction has strengthened among a growing number of officials at the Federal Reserve that it should risk another bout of quantitative easing - printing money to inject into the economy. “More QE is seen as a co-ordinated effort to get the dollar lower,” said Thomas Stolper of Goldman Sachs. “It makes sense for the US.” Separately, Goldman’s chief economist, Jan Hatzius, warned that the world’s biggest economy faces a “fairly bad” or a “very bad" scenario over the next six to nine months.
