Goldman Sachs, a major banking firm, is predicting a multi-year decline for the US dollar. They believe the recent weakness isn’t a temporary blip, but the start of a longer trend.
The Dollar’s Quiet Weakness
Chief economist Jan Hatzius described the situation as the “dog that didn’t bark.” While the US economy has shown signs of recovery since April, the dollar continues to weaken. This, Hatzius argues, points to deeper, long-term issues affecting the dollar’s value, not just short-term economic fluctuations.
Underlying Structural Problems
Hatzius highlights several factors contributing to this predicted decline:
- High Valuation: The dollar remains highly valued compared to other currencies, historically setting the stage for depreciation.
- Large Current Account Deficit: The US spends more than it earns globally, creating a large deficit that needs to be covered by foreign investment.
- Investor Concerns: Concerns about issues like the Federal Reserve’s independence might be influencing how foreign investors view US assets. This isn’t a sudden panic, but rather makes attracting the necessary foreign investment more challenging.
The Current Account Deficit Explained
The US current account deficit, around $1.1 trillion earlier this year, means the country relies on foreign investment to make up the difference between spending and earnings. If this foreign investment slows, the dollar’s value is likely to fall as more dollars enter the global market.
The Numbers
The US dollar index (DXY), which measures the dollar against other major currencies, is already down about 10% year-to-date.
Disclaimer: This information is for general knowledge and shouldn’t be considered investment advice. Always do your own research before making any investment decisions./p>