Goldman Sachs no longer bears a bearish outlook on the US dollar: a strong dollar will last longer in 2025

After a period of expectations for a "shallow depreciation" of the dollar falling short, Goldman Sachs stated in its latest research report that the dollar is entering an era of "stronger and more enduring" performance.

Goldman Sachs believes that the foreign exchange market in 2025 may be dominated by the continued strength of the dollar. Adjustments in policy combinations, the relative advantages of the U.S. economy, and the inflow of global capital all provide support for the dollar.

Therefore, Goldman Sachs indicated that the strong position of the dollar will last longer than previously expected, and the market needs to readjust its views on the dollar.

Despite maintaining an optimistic outlook on the dollar, Goldman Sachs also pointed out some potential risk factors. For instance, stronger-than-expected economic growth in other parts of the world could rebalance global capital flows and weaken the dollar's attractiveness. Additionally, more significant interest rate cuts could also exert some pressure on the dollar.

The Logic of a "Stronger and More Enduring" Dollar

Goldman Sachs pointed out that the core factors supporting the dollar's strength remain solid. The sustained growth of the U.S. economy, high-return asset markets, and limited resource idleness make dollar assets continuously attractive to global investors.

"Due to the dollar's high valuation for most of the past decade, thanks to its excellent risk-adjusted return, it has attracted portfolio flows from other developed economies."

Moreover, the dollar remains the dominant currency for global trade and reserves, and this status further solidifies its "stronger and more enduring" performance.

Goldman Sachs believes that the dollar will continue to be strong in 2025. Potential tariff policies and fiscal changes in the U.S. will also support the dollar. Tariff policies will not only suppress the performance of other major currencies but will also further attract international capital into the U.S. market. This combination effect could significantly increase import costs while lowering domestic operating costs for businesses, thereby enhancing the dollar's attractiveness.

The report mentioned that since the dollar reached a peak at the end of 2022, the market's expectations for dollar depreciation have largely not materialized. Although the dollar experienced limited adjustments in 2023 and 2024, this decline is more a result of short-term factors.

Risks to the Dollar's Strength

Despite Goldman Sachs' optimism about the dollar, it also pointed out some potential risk factors.

First, if global economic growth exceeds expectations, particularly the economic recovery in China and Europe, it could rebalance global capital flows and weaken the dollar's attractiveness.

Second, adjustments in domestic U.S. policies, such as more significant interest rate cuts, could also exert some pressure on the dollar. However, Goldman Sachs predicts that the Federal Reserve's monetary policy direction will be below market expectations.

Additionally, Goldman Sachs mentioned that changes in market sentiment could lead to increased volatility in the dollar. For example, if concerns about tariffs and fiscal policies gradually dissipate, other major currencies may gain some breathing room in the short term. However, from an overall trend perspective, Goldman Sachs still believes that the dollar will remain strong in 2025.

Currently, the dollar index stands at 106.88 points.

Currency Forecasts for Other Regions

Goldman Sachs predicts that even if economic growth improves in other parts of the world, the high valuation of the US dollar is still unlikely to be shaken in the short term. In particular, for currencies like the euro, tariffs and policy uncertainties may lead to continued poor performance.

Goldman Sachs believes that due to challenges facing economic growth in Europe, the euro is expected to remain weak over the next year. Although market expectations of policy divergence have already caused the euro to significantly decline against the US dollar, uncertainties in trade policy may continue to exert pressure.

The British pound is favored due to the relatively strong UK economy and is expected to outperform the euro in the coming quarters. The Japanese yen, on the other hand, may continue to be under pressure due to the relative strength of the US economy.

Other emerging market currencies such as the renminbi, Indian rupee, and Brazilian real will be affected to varying degrees by the US economy and policies. The Indian rupee is expected to perform relatively robustly