Dollar expected to rise: Goldman Sachs updates forecast ahead of Trump's decisions
Photo: The dollar will be more expensive than the euro (Getty Images)
Goldman Sachs has raised its dollar exchange rate forecast against major global currencies. The dollar is expected to become more expensive due to the strong US economy and Donald Trump's tariff increases, which could slow down the easing of monetary policy, Bloomberg reports.
"We expect the dollar to rally by about 5% over the coming year on the realization of new tariffs and continued US outperformance," Goldman Sachs said in a note. The strategists also do not rule out a more significant dollar strengthening.
This is Goldman's second adjustment in favor of a stronger dollar within about two months. The dollar is supported by consistently strong US growth and Trump's planned tariffs, which risk fanning inflation and derailing the Federal Reserve's easing.
Optimism regarding the dollar seems to be gaining momentum following the report on the sharp increase in employment on January 10, which reinforced the view of a resilient labor market and improved the dollar's prospects compared to currencies such as the euro and the Australian dollar.
Goldman Sachs now expects the euro to fall below parity to 0.97 against the dollar within six months. This level was last seen in 2022 after Russia's invasion of Ukraine triggered an energy crisis in Europe and raised concerns about a slowdown. Previously, the bank had forecast a rate of 1.05.
Even with the recent rate hike, Goldman strategists see risks of the dollar strengthening further in the future. This could partly result from the possibility of maintaining economic resilience despite higher tariffs and their more damaging impact on economies sensitive to rates.
"While we acknowledge that foreign-exchange market participants are clearly expecting some degree of tariff policy changes, and it is difficult to disentangle the drivers of recent moves, we maintain that there is more dollar strength ahead," they wrote.
As previously reported, the single European currency has fallen more than 7% against the dollar since late September. According to bank strategists, including Bank of New York Mellon and Mizuho, parity is expected to be reached a few months after Donald Trump's inauguration on January 20.
