Dimming Prospects: The Dollar's Looming Depreciation

Goldman Sachs' chief economist warns that foreign investor interest in U.S. dollar assets might decline unless the currency depreciates further, despite the absence of a significant economic slowdown. The U.S.'s current account deficit and high asset share in foreign portfolios necessitate this depreciation.

Foreign investors may soon lose interest in U.S. dollar assets unless the currency sees further depreciation, warned Jan Hatzius, chief economist at Goldman Sachs. Despite the absence of a significant economic slowdown, Hatzius anticipates a downward trajectory for the dollar, driven by several underlying factors.

Hatzius highlighted the U.S.'s high current account deficit and already substantial U.S. asset share in foreign portfolios as key pressures on sustaining foreign funding needs. While the U.S. boasts higher productivity trends than Europe, its relative performance is eroding, which could most visibly impact the currency markets.

The dollar has slid roughly 9% since President Trump took office, with investor apprehension fueled by protectionist trade policies and potential U.S. economic contraction. Goldman Sachs forecasts continued currency depreciation, regardless of notable economic downturns or aggressive Fed rate cuts.

(With inputs from agencies.)