Goldman Sachs strategists said the U.S. dollar could be quietly building momentum for further gains, warning that a broader energy shock may hurt European growth prospects and support additional upside for the currency.
While the trade-weighted dollar has traded in a relatively narrow range in recent months, Goldman argued that the surface stability hides much larger moves across global currency markets. The bank identified two dominant forces — persistent energy disruption and growing AI-related demand — as key drivers reshaping terms of trade and creating wider differences in currency performance.
According to the strategists, those factors pull growth in different directions but both contribute to rising inflation, which fits with Goldman’s current 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 said the dollar’s recent sideways movement reflects a balance between stronger commodity-linked cyclical currencies and heavily managed Asian foreign exchange markets.
The strategists noted that official intervention in currencies including the yen and Indian rupee has capped dollar gains despite otherwise favourable fundamentals, though they warned that such intervention may not remain effective without a material shift in global macro conditions.
The bank also pointed to last week’s dollar rally following stronger U.S. inflation readings, which lifted global bond yields and illustrated how quickly the greenback can respond when macro risks intensify. Limited progress from the Trump-Xi summit and ongoing constraints in energy supply further highlighted the dollar’s relative defensive appeal, Goldman said.
If market risk appetite remains stable, Goldman expects the recent divergence in currency performance to continue, with commodity-exporting currencies outperforming while rate-sensitive importers remain under pressure.
To capture that theme while guarding against a disruptive market shock, the bank favours holding a basket of the Brazilian real, Hungarian forint, Mexican peso and South African rand against short positions in the euro, Swedish krona and Thai baht.
Goldman added that rising inflation alongside resilient growth has already driven bond yields higher, and warned that any extension of the energy shock “should continue to drive relative returns consistent with shifting terms of trade,” a trend the strategists believe would support broader gains for the U.S. dollar against major developed-market currencies.
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