Goldman Sachs: Trump's Tariffs are Driving the Dollar into a New Period of Strength

According to currency strategists at Goldman Sachs Group, the dollar is entering a new strengthening phase due to Donald Trump's plans to impose high tariffs. The world’s reserve currency has been rallying since the end of September. This situation has challenged the bank’s long-held view that the currency would gradually decline from its expensive high levels. In a note on Friday, the Goldman team, led by Kamakshya Trivedi, stated, "We no longer expect a broad-based decline in the dollar. The dollar will remain stronger for a longer period."

Goldman's outlook had predicted that the U.S. currency would retreat from high valuations over the past two years. This forecast proved correct in 2023, but it was recently hindered by the dollar's 2.4% rise since the November 5 elections this year. The strategists remarked, “Our fundamental view for the past few years has been that we would only see a ‘shallow’ decline from the peaks at the end of 2022, and this has largely proven to be correct. We now expect tariffs, along with some fiscal changes, to take a prominent role in the U.S. policy landscape next year.”

They described tariffs as a "strong combination for the dollar" alongside an emerging economy and rising U.S. asset prices. Goldman anticipates that Trump's economic policies will both raise the cost of U.S. imports while lowering the domestic cost of doing business.

According to Goldman’s forecast, these advantages are expected to lift a trade-weighted dollar index by around 3% next year. It is projected that the euro will decline to $1.03 within the next 12 months, and the yen will weaken to 159 yen per dollar.