Tariff Clouds Continue to Loom! Goldman Sachs: US Dollar Exchange Rate to Continue Declining This Year

As early as a month ago, after US President Trump launched a tariff war globally, Michael Cahill, a senior currency strategist at Goldman Sachs Research, issued a report warning that US tariffs could lead to a depreciation of the US dollar.

A month later, despite a temporary "truce" in the Sino-US trade dispute and slight improvements in the US trade and economic outlook, Goldman Sachs still maintains a bearish outlook for the US dollar for the remainder of 2025.

Goldman Sachs analysts stated that two major clouds still loom over the US dollar: the structural shift in US trade policy and the trend of global asset reallocation, which will continue to weigh on the US dollar.

The US dollar remains under pressure from two major bearish factors

Although Goldman Sachs has lowered its assumptions about US tariff rates following progress in the Sino-US talks in Geneva, it warns that the US trade regime remains highly protectionist.

Goldman Sachs expects that Trump's tariffs will continue to suppress the real incomes of US citizens, squeeze corporate profit margins, and lead to persistent uncertainties in the US economy. This uncertainty may further dampen investment and pricing decisions, limiting the attractiveness of the US dollar.

On the other hand, for global investors, the trend towards greater diversification into non-US assets has become increasingly evident in recent times.

Despite recent improvements in US stock market returns, Goldman Sachs believes that US stock valuations are not low, and that assets outside the US offer greater return potential, supporting capital flows into non-US dollar assets.

In addition, the unpredictability of the Trump administration's policies in the US also further encourages global investors to reduce their investments in the US dollar and US dollar-denominated assets.

"Unexpectedly high overseas spending plans and weak performance of US assets have already led to some temporary but active withdrawals from US assets," Goldman Sachs wrote in its research report. Foreign central banks are reducing their reliance on the US dollar, and private investors may soon follow suit.

In summary, Goldman Sachs expects that, driven by lingering uncertainties in trade policy and the trend of global portfolio rebalancing and reduced US-centric allocations, the US dollar will continue to weaken in 2025.

As foreign investors reassess their risk exposures in a changing macro and policy environment, the strength of the US dollar is expected to gradually diminish. Goldman Sachs predicts that the US dollar will continue to fall by 10% against the euro and by 9% against the yen and the pound within the year.