Goldman expects greenback to gain 5% in 2025

Goldman expects greenback to gain 5% in 2025
Tariffs, economic resilience to dive dollar growth.
JAN 13, 2025
By  Bloomberg

by Ruth Carson

Goldman Sachs Group Inc. has upgraded its dollar forecasts, citing a robust US economy and likely higher tariffs that may slow monetary easing.

“We expect the dollar to rally by about 5% over the coming year on the realization of new tariffs and continued US outperformance,” strategists including Kamakshya Trivedi wrote in a note. Even with this upgrade, “we still see the risks tilted towards more dollar strength.”

It was Goldman’s second upward adjustment to its dollar call in about two months, underpinned by consistently strong US growth and Donald Trump’s planned tariffs that risk fanning inflation and derailing Federal Reserve easing. Optimism about the greenback looks set to gain more traction after Friday’s blowout jobs report that reinforced views of a resilient labor market, boosting the currency’s outlook against peers from the euro to the Australian dollar.

The Wall Street bank now sees the euro falling below parity to 0.97 against the dollar in six months — a level last breached in 2022 after Russia’s invasion of Ukraine triggered an energy crisis in Europe and ignited fears of a slowdown. That compares with the previous forecast of 1.05.

Meanwhile, Goldman lowered its six-month forecast for the pound to 1.22, versus 1.32 previously. Sterling fell as much as 0.7% to $1.2126 on Monday, the lowest since November 2023.

It also sees the Aussie dollar at 0.62 US cents in three months’ time, compared with its earlier prediction of 0.66 US cents. The Australian currency shed 0.1% on Monday to trade around the 0.61 level. 

Goldman’s recent dollar forecast upgrades marked a shift from their less bullish view in the immediate aftermath of the Fed’s pivot to policy easing in September. At that time, the bank lowered its forecasts for the greenback against a wide range of currencies. Instead, a Bloomberg gauge of the dollar has rallied more than 8% since a September low.

That said, the bank’s prediction over the past two years for the US currency to retreat from lofty valuations proved prescient in 2023, before being thwarted by its resurgence since the Nov. 5 election.

Meanwhile, Goldman was largely right on its dollar-yen call in March when it forecast the pair to rise to around the 155 level in three months. The pair swung between around 154 and 161 in June.

WHAT BLOOMBERG STRATEGISTS SAY...

The US dollar’s dominance shows no signs of abating, setting the stage for a challenging year ahead for Asian currencies.

Mary Nicola, Markets Live Strategist

The dollar’s dominance was equally on display in Asia Monday, with the greenback strengthening at least 0.5% against the currencies of Indonesia and the Philippines, and sending the Indian rupee to a record low. The onshore yuan also remains close to the weak end of its trading band despite Beijing’s latest effort to ramp up support via a verbal warning and tighter capital controls.   

Investors including hedge funds appear to be backing the upbeat view on the US currency, with bullish dollar positioning now at the highest since January 2019, Bloomberg-compiled data from the Commodity Futures Trading Commission show.

Even with the latest upgrade, Goldman’s strategists see risks of further dollar strength ahead. That may partly result from the possibility of continued economic resilience despite higher tariffs and the more disruptive impact on rate-sensitive economies, according to their note.  

“While we acknowledge that foreign-exchange market participants are clearly expecting some degree of tariff policy changes, and it is difficult to disentangle the drivers of recent moves, we maintain that there is more dollar strength ahead,” they wrote. 

 

Copyright Bloomberg News

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