US Dollar Set for Further Losses, Goldman Sachs Predicts

Goldman Sachs’ chief economist, Jan Hatzius, forecasts that the US dollar will continue falling, adding to the decline driven by tariff uncertainties and recession fears. In April, the dollar dropped by over 4.5% — its steepest monthly decline since late 2022 — sparking worries about a crisis of confidence in the world’s primary reserve currency.

This year, the dollar has already slipped by 8% against a basket of major currencies. Hatzius believes that additional falls could intensify price pressures, especially as rising tariffs are fueling inflationary concerns.

In a recent Financial Times opinion piece, Hatzius pointed out that a weaker dollar might help shrink the US trade deficit and offer some protection from a recession. However, he cautions that the same factors that are weakening the dollar could cancel out any positive effects on financial conditions.

"I often dodge questions about the dollar. My experience and a wealth of academic research show that predicting exchange rates is even tougher than forecasting growth, inflation, and interest rates. Yet, with due humility, I believe the recent broad trade-weighted depreciation of 5% still has further to go," he wrote.

Based on historical trends, Hatzius noted that periods in the mid-1980s and early 2000s — with similar dollar valuations to now — eventually led to a 25-30% decline. The IMF estimates that non-US investors hold around $22 trillion in US assets, roughly one-third of their total portfolios, half of which is in equities that are typically not hedged against currency fluctuations.

Hatzius also highlighted that the US current account deficit of $1.1 trillion must be balanced by the same amount in net capital inflow each year. A slowdown in foreign purchases of US assets could, therefore, put further downward pressure on the dollar.

Although these factors are significant, their impact would be less severe if the US economy continued to outpace its peers. However, recent IMF forecasts suggest that US growth will drop from 2.8% last year to 1.8% in 2025, making further depreciation more likely.

Despite the expected continued weakness, Hatzius believes that this does not mark the end of the dollar’s reserve currency status.