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Investment banking giant Goldman Sachs has recommended short positions against the US dollar, arguing that the risks arising from Covid vaccine trials and the US presidential election are skewed to the downside for the greenback.

The bank’s analysts said in a note to investors that they saw “low odds” for the most dollar-positive outcome by the end of 2020, which are an electoral win by Donald Trump, combined with a meaningful delay to vaccine progress.

They also highlighted that closely-watched indicators, such as event-prediction markets and public models, now put the chances of a Democratic clean sweep or “blue wave” – winning the White House, Senate and House – at over 60 percent.

“In our view, a ‘blue wave’ US election and favorable news on the vaccine timeline could return the trade-weighted Dollar and DXY index to their 2018 lows,” Co-Head of Global FX, Rates and EM Strategy Zach Pandl said.

Talking about Pfizer and Moderna’s coronavirus vaccines, he said “If the vaccines are highly effective, these early results may be sufficient to imply a high probability of emergency FDA approval by year-end.” 

“To be sure, there are important risks: we are most uncertain about the length of the vote count (especially for the Senate) and the equity market reaction to a ‘blue wave’. But the wide margin in current polls reduces the risk of a delayed election result, and the prospect for near-term vaccine breakthroughs may provide a backstop for risky assets,” Pandl added.

Goldman recommended investors short the dollar against a volatility-weighted basket consisting of the Mexican peso, South African rand and Indian rupee. The strategists also suggested buying the euro, Canadian and Australian dollars against the greenback. The firm is keeping open long recommendations for the yuan through unhedged Chinese government bonds.

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