Goldman Sachs strategists said the U.S. dollar may be gradually building upward pressure beneath the surface, arguing that a wider energy shock could undermine European growth and drive renewed strength in the greenback.
Although the trade-weighted dollar has remained broadly stable in recent months, the bank said that headline performance masks more significant moves underneath the surface. According to the strategists, two major forces — ongoing energy market disruption and rising AI-related demand — are increasingly reshaping global terms of trade and driving divergences in currency performance.
The bank noted that these factors have opposite implications for economic growth but jointly contribute to higher inflation, a pattern that aligns with Goldman’s broader macroeconomic outlook. “Our global growth expectations have been roughly stable since the middle of March, despite a longer conflict, while inflation projections have continued to drift higher,” the strategists wrote.
“The clearest risk for a stronger Dollar is if a wider energy shock begins to pressure growth, policy, and prospective returns in other developed countries, particularly Europe,” they said.
Goldman argued that the dollar’s recent sideways trading pattern reflects opposing pressures between commodity-linked cyclical currencies and tightly managed Asian foreign exchange markets.
The strategists pointed out that direct intervention in currencies such as the Japanese yen and Indian rupee has limited broader dollar gains despite supportive underlying fundamentals, although they cautioned that such policies may prove difficult to sustain without a significant shift in the global economic backdrop.
The note also highlighted last week’s rise in the dollar following stronger-than-expected U.S. inflation data, which pushed global bond yields higher and demonstrated how rapidly the currency can strengthen when underlying risks return to focus. Limited progress from the Trump-Xi summit and continued constraints on energy supply also reinforced the dollar’s relative resilience, according to Goldman.
Looking ahead, the bank said that if broader market sentiment remains stable, the recent split performance in currency markets is likely to continue, with higher-beta commodity-exporting currencies outperforming while rate-sensitive commodity importers lag behind.
To position for that environment while protecting against a potential market shock, Goldman said it favours a long basket comprising the Brazilian real, Hungarian forint, Mexican peso and South African rand, funded against the euro, Swedish krona and Thai baht.
