Goldman Sachs economists said that the US dollar index has fallen significantly recently - by 1.68% last week and by 3.12% since the beginning of the month - but its further decline may be curbed if the U.S. stock market can drive solid returns.
The fall in the US dollar was caused by increased expectations of easing of the Fed's monetary policy, economists said, adding that there are “justifiable reasons” to pare back long-dollar positions.
"The growth of global stock markets, along with improved expectations of global growth, usually negatively affects the dollar. However, we would like to warn that when American stocks outperform global ones, the dollar actually tends to strengthen,” Goldman Sachs said.
Since the beginning of 2024, the S&P 500 index has grown by an impressive 18%, and has almost returned to its historic closing high of 5,667 points after a sell-off this month. Meanwhile, the MSCI World Index rose about 15%, Germany's DAX gained about 11%, and Japan's Nikkei rose about 14%.
Goldman Sachs economists have warned that the US presidential election scheduled for November is a key factor determining the direction of the dollar, but uncertainty about trade policy and budget spending could still prevent a significant outflow of funds from the dollar. “However, these factors mean that the Dollar's rich valuation will not erode quickly or easily," the economists said.