Investment banking giant Goldman Sachs' latest decision to retract from its bearish view on the U.S. dollar is receiving a thumbs down from financial markets.
While bitcoin is trading nearly 1.5% higher on the day at $59,000 at press time, the dollar index, which measures the greenback's value against fiat currencies such as the euro, pound and yen, is 0.5% lower at 92.56.
Goldman Sachs on Friday recommended closing U.S. dollar short trades against a basket of currencies, including the commodity-sensitive Aussie and New Zealand dollars.
"Although we still expect these currencies to appreciate versus the dollar over the coming quarters, firm U.S. growth and rising bond yields may keep the greenback supported over the short term," strategists including Zach Pandl wrote in a note titled "tactical retreat," according to Bloomberg.
Goldman recommended short dollar trades on Oct. 9 when bitcoin was trading near $11,000, a far cry from the current $59,000. Bitcoin hit a record high of $61,557 last month.
Most major fiat currencies have also charted stellar gains over the past six months. Almost every asset denominated in dollar terms has rallied significantly over the past 12 months, courtesy of the Federal Reserve's open-ended liquidity-boosting program.
Betting against the dollar has been one of the most crowded trades of the last 12 months, as per Bank of America's monthly fund manager surveys.
Goldman, however, now fears that selling pressure around the dollar may weaken due to rising Treasury yields. The 10-year yield has surged by 80 basis points this year, making the greenback attractive for income-seeking investors.
The jury remains out as to whether the tide will turn in favor of the greenback, dragging bitcoin lower. If recent price action is a guide, the probability of bitcoin melting on a potential U.S. dollar index (DXY) rally appears low.
The dollar index witnessed a corrective bounce in the January-March period, rising 3.66% following three straight quarterly declines. Even so, bitcoin surged 100%.
The cryptocurrency remained bid as increased institutional demand offered clarity to investors about the digital asset's value proposition relative to traditional markets, weakening its correlation with stocks, gold, etc.
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