Goldman Sachs' Chief Economist, Jan Hatzius, expects continued weakness in the US dollar, which has already fallen by more than 4.5% in April and 8% since the beginning of the year due to uncertainty surrounding tariffs and recession fears. While a weaker dollar may help reduce the US trade deficit and provide some economic protection, it can also lead to increased inflation, especially with tariffs impacting prices.
Hatzius noted that similar historical data, as seen in the mid-1980s and early 2000s, suggests the possibility of a 25-30% decline in the dollar. He also pointed out that foreign investors own nearly $22 trillion in US assets, and a slowdown in foreign investment flows could increase pressure on the dollar, particularly with a current account deficit of $1.1 trillion.
Although the International Monetary Fund expects a slowdown in US economic growth from 2.8% in 2024 to 1.8% in 2025, which weakens the relative strength of the dollar, Hatzius believes this does not threaten the dollar's status as a global reserve currency. He concludes by emphasizing that the dollar's dominance as a medium of exchange and store of value remains firmly established to a degree that is difficult for any other currency to replace.
Source: Investing.
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