Goldman Sachs boldly predicts: Under Trump's new tariff policy, the dollar will "soar in the long term"

Goldman Sachs' currency strategist recently stated that due to Donald Trump's plan to impose high tariffs, the US dollar is entering a new period of strength, contradicting the central bank's previous predictions of a gradual decline. Since the end of September, the global reserve currency, the US dollar, has been steadily rising, weakening not only the central bank's long-term forecast but also prompting Goldman Sachs to adjust its outlook on the US dollar. The team at Goldman Sachs, led by Kamakshya Trivedi, explicitly stated in their report that they no longer anticipate a comprehensive devaluation of the US dollar, but rather believe that the dollar will maintain its strength over a longer period of time. This shift in prediction is particularly noteworthy because Goldman Sachs has been predicting a return to the undervalued levels for the past two years. Despite this prediction being accurate in 2023, the US dollar has risen by 2.4% since the election on November 5, indicating a new trend of strength. They stated, "Our core belief over the past few years has been that the US dollar will only experience a slight devaluation from its peak levels by the end of 2022, a prediction that has largely been validated." "Currently, we anticipate tariffs playing a significant role in US policy next year and expect further fiscal reform measures to be implemented." Goldman Sachs' strategists point out that tariffs, a thriving economy, and rising US asset prices together form a strong combination for the US dollar. They predict that Trump's economic policies will increase the cost of imported products while reducing domestic operating costs, which will drive the US dollar trade-weighted index to rise by about 3% next year. For the euro and yen, Goldman Sachs predicts that within the next 12 months, the euro will fall to $1.03 and the yen will devalue to 1 USD to 159 yen. Market reactions have also confirmed Goldman's predictions, as Bloomberg's US dollar index rose for the seventh consecutive week last Friday, marking the longest streak since February. Traders are buying into long positions, betting on a stronger dollar and rising US Treasury yields. Although Goldman Sachs is fairly optimistic about the US dollar, they also acknowledge that the dollar may not reach the highs of 2022. Considering the high valuation of the dollar and the dovish outlook of the Federal Reserve, Goldman predicts that the upward trend may face some resistance. Furthermore, a strong dollar may compel other countries to take measures to support their own currencies, whether through direct intervention in the foreign exchange market or by raising interest rates. Goldman's strategists warn that a strong dollar may catalyze some countries to implement new intervention measures and could lead to stricter monetary policies. Additionally, comments from US officials on exchange rates may occasionally trigger fluctuations in the foreign exchange market, similar to the past two years when the euro fell below parity with the dollar and Japanese authorities intervened to support the yen. Overall, Goldman Sachs expects the US dollar to remain strong in the near future, based not only on Trump's tariff policy but also on the robust growth of the US economy and the rise in asset prices. However, a stronger dollar will also have far-reaching effects on other countries and monetary policies, attracting attention and responses from global markets.