Stop wor­ry­ing about stronger dol­lar

The Pak Banker - - COMPANIES/BOSS -

It's time for the Fed­eral Re­serve to end its dol­lar fix­a­tion. That's the take­away from a Gold­man Sachs Group Inc re­port that sug­gests the US cur­rency poses lit­tle threat to the Fed's in­fla­tion goals, chal­leng­ing pol­icy mak­ers' com­ments to the con­trary.

That's good news for dol­lar bulls who are bet­ting on ex­panded mone­tary-pol­icy di­ver­gence be­tween the U.S., Europe and Ja­pan. In­fla­tion is at the heart of the Fed's de­bate about the tim­ing of in­ter­est-rate in­creases as of­fi­cials look to nor­mal­ize mone­tary pol­icy af­ter seven years of near-zero in­ter­est rates.

With a stronger dol­lar not trans­lat­ing into sig­nif­i­cantly cheaper im­port prices, Gold­man Sachs sug­gests the cen­tral bank faces fewer head­winds to hik­ing rates than mar­kets are cur­rently pric­ing in. "The ma­jor­ity of the ef­fects of a stronger dol­lar on im­port prices have al­ready been re­al­ized," New York-based an­a­lysts Zach Pandl and Elad Pash­tan wrote in the note.

"In­fla­tion data to date ap­pears to be more closely track­ing a path with less dol­lar pass-through to core in­fla­tion" than im­plied by the Fed's pro­jec­tions for con­sumer prices.

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