MW Goldman's chief economist says the dollar has further to fall. Here's why.

By Steve Goldstein

Goldman Sachs chief economist Jan Hatzius took to the pink-hued pages of the Financial Times to argue, ostensibly to an international audience, that the U.S. dollar will fall further.

That's been the case even in the hours since the article was first published, as the euro rallied following better-than-expected German business data.

This year, the U.S. dollar index DXY has tumbled 9% below its January peak and skidded to a three-year low.

Hatzius noted that the value of the dollar, when adjusted for inflation, still stands nearly two standard deviations above its average since the start of the floating exchange rate era in 1973.

The only two historical periods with similar valuation levels were the mid-1980s and the early 2000s, he said - both of which set the stage for depreciation of 25% to 30%.

Hatzius pointed out that foreign investors - who, according to International Monetary Fund estimates, hold $22 trillion in U.S. assets -don't even need to reduce their American holdings for the dollar to weaken. Simply a decision not to add to their U.S. portfolios will probably weigh on the dollar, he said, because balance of payments accounting implies that the U.S. current-account deficit of $1.1 trillion must be financed via a net capital inflow of $1.1 trillion per year.

"If non-U.S. investors don't want to buy more U.S. assets at their current prices, those prices must fall, the dollar must weaken, or (most likely) both," he said. With the U.S. economy not expected to outperform its rivals, investors will have reason to curb their appetite for U.S. assets, he said.

Hatzius was quick to add the caveat that he doesn't expect the dollar to lose its status as the world's reserve currency. "We have had large exchange rate moves without loss of the dollar's dominant status in the past, and our baseline expectation is that the current move will be no different," he said.

Kit Juckes, Société Générale's foreign-currency strategist, opined on the same topic in a Thursday note. He said there are reasons why the dollar selling might be overdone. He cited the gap that has opened up between dollar depreciation and Federal Reserve rate pricing.

"Should I embrace the long-term trend and ignore the fact that the dollar is falling faster than the economy is slowing? Or buy the dollar in anticipation that rates and FX markets will get themselves back into synch," he wrote.

He seemed to be leaning toward the former, though a break above 100 on the dollar index could break the pattern if paired with resilient U.S. economic data. "There's further dollar weakness on the horizon, and more exhausting headline-filled days ahead for now," he said.

-Steve Goldstein

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April 24, 2025 06:51 ET (10:51 GMT)

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