The Dollar No Longer Smiles? Goldman: Tariff Impact and Waning Confidence Accelerate Devaluation Trend
In traditional global financial market theory, the dollar has always exhibited a strong "smile curve" characteristic—attracting capital whether the economy is booming or in recession. However, the re-emergence of trade wars in 2025 is upending this classic logic. The intertwining of tariff policies, geopolitical issues, and policy uncertainty is gradually eroding the dollar's safe-haven status. Latest data reveal that the Bloomberg Dollar Spot Index has fallen by more than 6% this year.
Goldman Lowers Dollar Outlook, Key Lies in "American Exceptionalism" Losing Effect
Goldman's latest research report clearly states that the dollar's weakness in the first quarter of 2025 is not a temporary phenomenon but a precursor to a structural shift. The report states: "The strength of the dollar was based on U.S. assets showing high returns and institutional advantages, but these advantages are being eroded by trade policies."
Looking ahead to the next few quarters, Goldman predicts that the dollar will fall about 10% against the euro, and around 9% against the yen and the pound. The core inference is that U.S. corporate profits and consumer purchasing power are being eroded by tariffs, weakening the institutional advantages and economic returns that constituted "American exceptionalism."
Trade War Backfires, Dollar's Safe-Haven Attribute Weakened
In the past, whenever the global market faced shocks, dollar assets were always seen as a "safe haven." But this year's trade tensions have instead caused the market to question the policy stability of the United States itself. Goldman points out that the current tariffs are not only widespread and unilateral but also directly affect American families and businesses, making them "price takers." This means that supply chains and consumption structures that cannot quickly adjust in the short term will directly bear the consequences of rising prices and shrinking demand, reflecting on the monetary level as increased devaluation pressure on the dollar.
Global Capital Reallocation, Appeal of Dollar Assets Diminishing
More significantly, international capital's allocation to dollar assets is undergoing a shift. Goldman observed that recent foreign investors, including sovereign wealth funds, have begun to reduce their proportion of dollar assets. More alarmingly, foreign central banks are also gradually decreasing their share of dollar reserves, indicating that the "de-dollarization" trend is spreading from policy to market behavior.
"The growth of foreign spending plans has far exceeded expectations, while U.S. assets have performed tepidly," Goldman notes, prompting some investors to transfer funds out of the U.S. market, albeit temporarily but noticeably. The reduction in inbound tourism and growing resistance among overseas consumers toward American products are also quietly changing the composition of GDP growth.
Private Investors May Become the Next Wave of Divestment Leaders
Goldman further warns that if the U.S. government cannot establish stable expectations between trade and fiscal policies, private sector investors may also begin to "follow suit" with official institutions' risk-averse behaviors. Should market sentiment further deteriorate, the dollar could face more drastic capital outflows and valuation recalibrations.
"Dollar devaluation is no longer just a macroeconomic variable but might evolve into a confidence event," Goldman concludes.
Conclusion: From Institutional Dividends to Structural Cracks, the Dollar is Losing Its "Exceptional Status"
From the "dollar smile" to the "dollar dilemma," the capital market's attitude towards the U.S. is undergoing profound changes. Once regarded as a dual carrier of global growth and safe haven, the dollar is now losing its upward logic under the multiple pressures of tariff policies, self-imposed stress, and a global shift in confidence. Goldman's analysis may not be the endpoint, but it conveys a clear and unmistakable signal: if "American exceptionalism" cannot be reestablished, the downward channel for the dollar may just be opening.
