The American Goldman Sachs Group expected that the US dollar will continue to rise based on the strength of the US economy and the possibility of imposing customs tariffs with the advent of the administration of President-elect Donald Trump, who tends to slow down monetary easing (measures that include lowering interest rates).
“We expect the dollar to rise by about 5% over the next year with the imposition of new tariffs and the continued superiority of the United States,” strategists at the bank – including Kamakshya Trivedi – wrote in a note. Even with this upgrade, “we still see risks tilted towards further dollar strength.” .
Second Amendment
This was the second upward revision to Goldman Sachs’ dollar forecast in more than two months, supported by continued strong US growth and Trump’s planned tariffs that risk stoking inflation and impeding monetary easing by the Federal Reserve.
Optimism about the dollar looks set to gain further momentum after Friday’s jobs report reinforced views on a resilient labor market, boosting the currency’s outlook against its counterparts from the euro to the Australian dollar.
The Wall Street bank now expects the euro to fall below the parity level of 0.97 against the dollar in 6 months, a level that was last breached in 2022 after the Russian-Ukrainian war caused an energy crisis in Europe, raising fears of an economic slowdown. This compares to previous expectations of $1.05.
Meanwhile, Goldman Sachs lowered its 6-month forecast for the British pound to $1.22, from $1.32 previously, and the British pound fell 0.7% to $1.2126 on Monday, the lowest level since November 2023.
The bank reduced its expectations for the Australian dollar to 62 US cents within 3 months, compared to its previous expectations of 66 cents, and the Australian currency is trading around the level of 0.61 against the dollar.
transformation
Goldman Sachs’ recent upgrade to its dollar outlook marked a shift from their less bullish view following the Fed’s shift to easing policy in September, at which time the bank lowered its outlook for the dollar against a wide range of currencies.
However, the bank’s expectations over the past two years that the US currency would fall below high valuations proved correct in 2023, before being frustrated by its return since the November 5 elections.
Bloomberg Live Markets Strategist Marie Nicola says the dollar’s dominance shows no signs of abating, setting the stage for a tough year ahead for Asian currencies.
Currency performance
Today’s currency performance was as follows:
- The dollar index rose to its highest level in more than two years against a basket of 6 currencies, reaching a peak at 109.98, before falling slightly to 109.88 points in the latest trading.
- The euro recorded its lowest level since November 2022 at $1.0275, before recovering some of its losses at $1.0209, and the British pound witnessed a decline that made it one of the biggest losers today, as it fell by more than 0.5% to the lowest level in 14 months at $1.2128 before recovering. Some of its losses recorded $1.2136.
- In Japan, the yen rose 0.1% to 157.53, and its decline was prevented by news that policymakers at the Bank of Japan may raise their inflation expectations at the monetary policy meeting this month, which may indicate a new hike in interest rates.
