Goldman Sachs's Chief FX and EM Strategist discusses the potential impact on global currencies amid the U.S. government's ongoing government shutdown. He speaks on Bloomberg's The Asia Trade.

Washington

Kamakshya Trivedi, Chief FX and Emerging Market Strategist at Goldman Sachs, discussed the potential effects of a US government shutdown on the foreign exchange market. He noted that while shutdown risks have been somewhat anticipated, a prolonged shutdown could impact US growth data and labor market metrics, leading to increased reliance on private sector data.

Trivedi explained that recent concerns about US economic recovery have put pressure on the dollar, which he considers still overvalued but gradually eroding in value. He also pointed out that when US growth concerns rise, currencies like the Japanese yen often benefit, as seen in recent market sessions.

Goldman's Trivedi on how U.S. shutdown could impact FX

Now, all this does seem to raise the question of the greenback's safe haven role. Of course, we've been seeing the overwhelming concern being about the shutdown and the Fed's trajectory. The dollar has been coming under pressure for a couple of sessions now. Let's bring in Kamakshya Trivedi, Chief FX and Emerging Market Strategist at Goldman Sachs. Really good to have you. Good morning. It's nice to be here. So, how are you positioning around the shutdown risks in the US? Yeah, I think it's an important development. I think it's one that has to some extent been anticipated. So, it typically tends to not have a huge amount of wall enhancing impact. But I think one of the narrative that had been gaining ground in the market in the last few weeks has been this sort of trend of US data getting better. And I think the shutdown just arrests that and reverses that to some extent. I think it brings up the fact that potentially if it lasts longer, you could have some impact on the growth data. You could also have some impact on other metrics in the labor market. And especially when you don't get those sort of official data, if it lasts through a couple of weeks, then there'll be more emphasis on private sector data, other survey data. And so, I think what it's done is it's put back a little bit of doubt in the minds of the people who are looking for a US economic recovery. And that in turn has put the dollar on the back foot once again. So, are we looking at new lows on the dollar, you think? I think the bigger picture here is that the dollar is still overvalued. It's less overvalued than it was at the start of the year, but that high valuation is gradually eroding with the US being no longer exceptional in a macroeconomic sense or in a market sense. But exactly against what, that keeps shifting, right? And so, if it was euro at the start of the year, it was CNY in August, it's been emerging markets over the summer, you're beginning to see the yen finally move as well. That's quite typical. When concerns around US growth come to the fore, when you have both US equities, US rates declining together a little bit like you've seen in the past few sessions, the yen tends to be the primary beneficiary and that's what we're seeing in the last couple of days.

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