Goldman Sachs: The dollar will continue to decline in value even if there is no recession in the US
The dollar is expected to decline even without a significant slowdown in the US economy, Goldman Sachs Chief Economist Ian Hatzius said in an interview with Reuters.
According to Hatzius, foreign investors may become less interested in investing in American assets unless the dollar starts to decline in value even further.
"The dollar is still overvalued... I expect foreign investors to be less willing to continue to increase the share of the US in their portfolios" , – said Hatzius.
According to him, although the US has advantages compared to Europe, in particular higher productivity, its economic position is gradually beginning to weaken, which may be most clearly manifested in the exchange rate.
He noted that the US current account deficit exceeds $1 trillion, which means the country relies on foreign demand to finance the trade deficit.
But because foreign portfolios already hold a significant share of US assets, further funding needs could become problematic without a depreciation of the dollar.
The dollar index has already fallen about 9% since the inauguration of US President Donald Trump , partly due to his trade policies and tariff threats.
Despite growing concerns about a possible recession in the US due to protectionism, Hatzius believes the dollar will decline even without it.
"If the economy slows down even more and [ed. – Federal Reserve] cuts interest rates even more, that will add to the argument... but I'm not building the argument for dollar depreciation on a recession forecast or very aggressive rate cuts, I think you'll get dollar depreciation even if the rate cuts are relatively modest" , – emphasized Hatzius.
He also noted that the Fed could be considering cutting rates now if not for the impact of tariffs that are increasing inflation.
Goldman Sachs currently expects US GDP growth to slow to 0.3% in the first quarter (after 2.4% in the fourth quarter of 2024).
The year-end forecast is just 0.5%. The bank also predicts three Fed rate cuts of 0.25% each – in June, July and September.
- Ahead of Trump's announcement of new "mirror" tariffs on April 1, Goldman Sachs almost doubled its forecasted probability of a US recession over the next 12 months to 35%.
- JPMorgan economists have warned that the risk of a global recession has risen from 40% to 60% after US President Donald Trump announced new import tariffs.
- On April 7, Goldman Sachs raised the chances of a recession in the US to 45% and lowered its GDP forecast.