Goldman Sachs Anticipates Further Decline in U.S. Dollar Amid Economic Pressures

Goldman Sachs’ chief economist, Jan Hatzius, has forecast continued weakness for the U.S. dollar, citing persistent economic headwinds such as trade tensions and looming recession risks.

The greenback has already suffered a significant setback, falling by over 4.5% throughout April — its most substantial monthly drop since the end of 2022. Year-to-date, it has lost roughly 8% against a basket of major global currencies, fuelling concerns about a potential loss of confidence in what remains the world’s primary reserve currency.

Hatzius warns that further depreciation of the dollar could intensify inflationary pressures, particularly at a time when tariffs are already driving up costs. However, in a recent Financial Times article, he acknowledged that a weaker dollar might help narrow the U.S. trade deficit and potentially cushion the economy against a downturn.

Yet he cautioned: “While a depreciating dollar can provide some economic relief, the underlying causes behind its decline could undermine those benefits.”

Reflecting on historical trends, Hatzius pointed out that during previous periods of similar dollar valuations — notably in the mid-1980s and early 2000s — the currency saw a drop of between 25% and 30%. Based on current conditions, he believes a similar trajectory may be underway.

According to the International Monetary Fund (IMF), foreign investors hold approximately $22 trillion in U.S. assets — possibly accounting for one-third of total global investment portfolios. Around half of these holdings are in American equities, which are often unhedged for currency fluctuations. A pullback in foreign demand for these assets, Hatzius argues, could place additional downward pressure on the dollar.

He also drew attention to the U.S. current account deficit, which stands at an estimated $1.1 trillion annually. To maintain balance, this shortfall must be offset by an equivalent influx of foreign capital — a dynamic that relies heavily on sustained interest in U.S. investments.

While some of the dollar’s vulnerabilities could be mitigated if the U.S. economy were to outperform its global counterparts, recent IMF projections cast doubt on this scenario. The organisation expects U.S. GDP growth to slow to 1.8% in 2025, down from 2.8% the previous year.

Despite the ongoing challenges, Hatzius remains confident in the dollar’s long-term dominance in international finance.

“Unless we see a truly extreme disruption, the dollar’s role as a global currency is unlikely to be seriously threatened. Its entrenched status as a trusted medium of exchange and store of value gives it enduring appeal,” he concluded.