Goldman Sachs Analysts Reflect on US Dollar Volatility

In recent weeks, the volatility of the US dollar appears to have calmed, but analysts at Goldman Sachs Group suggest that it could start behaving more like a “risky” currency.

According to analysts Karen Reichcott Fishman and Lexie Kanter, there’s been a noticeable shift away from US assets. This change could be influenced by growing uncertainty surrounding trade tariffs and the independence of the Federal Reserve, alongside general financial concerns and the need for diversification.

A sudden dip in the dollar’s value—triggered by President Donald Trump’s threats to impose tariffs on global trading partners—has led to speculation about the dollar’s future as a safe haven asset. While Goldman analysts don’t foresee a complete shift, they caution that the near-term outlook may remain tumultuous.

In a memo dated July 9th, the analysts noted, “The shift correlation has unreliable results during the risk-off period.”

Despite some recent stabilization, the dollar has been trading in a manner akin to a risky currency. Bloomberg data indicates that the correlation between the dollar and the G-10 volatility gauge has hit its lowest point in seven years.

This suggests that the dollar is acting both as a safe haven and a source of volatility. Historically, for most of the past 15 years, these correlations have been quite strong. The analysts think that longstanding market beliefs could lead to lower hedge costs when these costs weaken against emerging challenges.

A strategist from Bloomberg commented, “The dollar outlook is long-term negative for multiple reasons: global trade declines, derailment, and re-establishing hedge ratios. However, it’s already undeniably sold, and markets rarely navigate a straight path to their ultimate destination.”

One noteworthy development highlighted by Goldman Sachs analysts is an increasing trend of selling US stocks alongside the dollar. This pattern has been observed more frequently than twice as often as in the previous decade.

Additionally, “Signs of a decline in US asset appeals” have become more prevalent, especially when stocks, Treasury yields, and the dollar all decline simultaneously.