Investment banking firm Goldman Sachs Group Inc (NYSE:GS) is recommending shorting the U.S. dollar on the odds of Democrat Joe Biden winning the November election and a coronavirus vaccine materializing soon.
Both factors are negative for the greenback in Goldman Sachs' view, according to Bloomberg.
The Goldman Investor Note: In an investment note on Friday, Goldman strategists and analyst Zach Pandl said odds are low for the most positive dollar outcome: an election victory for incumbent Republican President Donald Trump and a delay in a coronavirus vaccine.
Goldman's Dollar Thesis: "A ‘blue wave' U.S. election and favorable news on the vaccine timeline could return the trade-weighted dollar and DXY index to their 2018 lows," Pandl said in the note.
Goldman placed the odds of Democratic challenger Joe Biden winning the winning the White House, Democrats taking a Senate majority and holding their House majority at more than 60%.
On the vaccine front, Pfizer Inc (NYSE: PFE) is anticipating a conclusive readout from a Phase 3 trial by end of October, and Moderna Inc (NASDAQ:MRNA) anticipates analysis of Phase 3 trials being available by November.
If the vaccines are highly effective, there is a high probability of emergency FDA approval by the end of 2020.
Goldman recommends two dollar short trades going into the fourth quarter that bet on the depreciation of the greenback.
One trade is shorting the dollar against a volatility weighted basket consisting of the Mexican peso, South African rand and Indian rupee; and another is a separate long on an equal-weighted basket of Canadian dollars, Aussie dollars and euros.
The U.S. Dollar index hit a low of 88.25 in 2018 and briefly touched a high of 103 in March of this year led by the uncertainties related to the coronavirus pandemic.
It is trading higher by 0.16% to 93.21 at press time Monday, implying that Goldman sees downside of
more than 4%.