Dollar Has Further To Fall, Says Goldman Sachs Chief Economist

Economic

Summary:

The dollar, battered and bruised by US tariff uncertainty and recession fears, has much further to fall.

The dollar, battered and bruised by US tariff uncertainty and recession fears, has much further to fall, Goldman Sachs chief economist Jan Hatzius says.

The dollar has fallen over 4.5% in April, set for its biggest monthly drop since late 2022, as investors dump US assets, sparking talk of a crisis of confidence in the world's No 1 reserve currency.

It has slumped 8% this year against a basket of other major currencies.

Further falls would exacerbate price pressures when tariffs are already pushing up inflation, Hatzius writes in an opinion piece in the Financial Times.

A weaker dollar, by making exports cheaper, would also help narrow the US trade deficit and help buffer the economy from recession. But Hatzius notes the drivers of dollar weakness matter and reduced appetite for US assets could offset the impact of a weaker currency on financial conditions.

"I often dodge questions about the dollar. A large body of academic literature and my own experience as an economic forecaster have taught me that predicting exchange rates is even harder than predicting growth, inflation and interest rates," said Hatzius.

"But with all due humility, I believe that the recent dollar depreciation of 5% on a broad trade-weighted basis has considerably further to go."

Hatzius, noted that two historical periods with similar dollar valuations to the present day — the mid-1980s and early 2000s — set the stage for a 25%-30% depreciation.

The IMF estimates non-US investors hold around US$22 trillion in US assets. Hatzius says this perhaps makes up a third of combined portfolios, with half of this in equities that are often not hedged for currency moves.

Hatzius adds a US current account deficit of US$1.1 trillion has to be financed by a net capital inflow of the same amount every year. In theory, this comes from foreign buying of US assets, so even a pause in foreign US asset purchases could hurt the greenback.

Hatzius says such factors would not carry so much weight if the US economy continued to outperform its peers, but this looks unlikely.

The IMF on Tuesday forecast US economic growth will drop by a full percentage point to just 1.8% in 2025 from 2.8% last year.

For Hatzius, dollar weakness should not be confused with a loss of its reserve currency status.

"Barring extreme shocks, we think the dollar’s advantages as a global medium of exchange and store of value are too entrenched for other currencies to overcome," he writes.

Deutsche Bank believes the euro could reach US$1.30 over the remainder of the decade, from US$1.13 right now, as the dollar loses favour.

Source: Theedgemarkets

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Optimism from the White House meets stalled negotiations

On April 23, 2025, President Donald Trump reiterated his ambition for a “fair deal” with China during a press briefing in Washington. While affirming that progress was being made, he stopped short of confirming active negotiations, stating only that “everything is moving along.” Trump also clarified that any reduction in tariffs would depend on concrete actions by the Chinese leadership—highlighting the conditional nature of potential de-escalation.

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Escalating tariffs threaten economic stability

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Structural obstacles to a quick resolution

Treasury Secretary Bessent’s remarks hint at a broader range of issues beyond tariffs. Washington is increasingly concerned with non-tariff barriers and state subsidies in China, which complicate the trade equation. This multipronged challenge means that even if tariff issues are addressed, underlying structural disagreements—such as state-led industrial policy and intellectual property enforcement—may prolong the standoff.

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Fragile optimism amid entrenched positions

While President Trump’s public statements about a “fair deal” offer a glimmer of hope, the fundamental dynamics of the U.S.–China trade relationship remain deeply adversarial. With historic tariff levels in place and official talks still in limbo, any breakthrough will likely require strategic concessions and a reframing of expectations on both sides.

For now, the global economy watches warily as the world’s two largest economies edge closer to a prolonged trade cold war—one where economic friction, rather than diplomacy, continues to define the tone of engagement. The costs of this deadlock will not be confined to bilateral ties but will ripple across global markets already strained by uncertainty.

Source: Global Times

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News Background

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UK faces direct fallout from U.S. trade war measures

British Chancellor of the Exchequer Rachel Reeves has issued a stark warning about the economic risks posed by the United States' evolving trade policies under former President Donald Trump. Speaking ahead of the Spring Meetings of the IMF and the World Bank, Reeves emphasized that global trade is entering a new and uncertain era. She described the reintroduction of aggressive U.S. tariffs as a move that could deeply disrupt not only the global economy but also the UK's already vulnerable post-Brexit recovery.

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Trade instability challenges UK's industrial core

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In this context, trade tensions with the U.S. are not only economic irritants — they represent structural risks. The potential tariff burden could erode competitiveness, reduce foreign direct investment, and trigger supply chain disruptions that spill over into other sectors. The correlation between increased U.S. tariffs and downgraded UK growth forecasts suggests a feedback loop in which economic interdependence intensifies mutual vulnerability.

Strategic response: Diplomatic engagement and negotiation frameworks

Reeves' itinerary includes a high-stakes meeting with U.S. Treasury Secretary Scott Bessent, who leads Trump’s trade negotiations. The UK hopes to secure exemptions or reductions in current and upcoming tariffs, while also proposing a broader digital trade and regulation review — including revisiting digital services taxes and online safety rules — as a negotiating lever.

The UK is also exploring conditional flexibility in agricultural trade, potentially lowering tariffs on high-quality U.S. meat products such as beef, pork, and poultry. However, London has clearly defined its food standards as a non-negotiable red line, reflecting domestic political sensitivities and public health concerns.

Although such trade-offs may unlock partial concessions, the tone from UK officials remains cautious. With national interest protection at the core of any agreement, the likelihood of a breakthrough during this week’s meetings remains slim, underscoring the complexity and fragility of post-Brexit UK-U.S. trade relations.

The thin line between protectionism and progress

The UK’s strategic posture reflects a broader reality facing mid-sized economies in an era of renewed protectionism. As the United States pivots toward unilateral trade actions, allies like the UK must navigate a narrow path — balancing economic exposure, domestic politics, and diplomatic leverage.

Reeves’ proactive stance at the IMF and World Bank meetings signals Britain’s attempt to assert its role as a voice for open markets amid rising global fragmentation. Yet the outcome of these efforts depends heavily on U.S. willingness to compromise and the evolving logic of economic nationalism. For now, the UK economy stands at a precarious crossroads, where even marginal policy shifts in Washington could trigger disproportionate ripple effects in London.

Source: Reuters

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Glendon

Forex

Economic

China–U.S. Trade War

China has said it is not in any talks with the United States about raising tariffs, although recent statements from the White House have raised hopes of easing trade tensions between the world's two largest economies, CNBC reported.

A spokesman for China's Ministry of Commerce said there are "absolutely no economic or trade talks currently taking place between China and the United States," CNBC reported Thursday. The spokesman said "all talk" about potential progress in the discussions should be discarded, the business news outlet reported.

Beijing also called on the US to "cancel all unilateral measures" if it wants to "solve the problem," CNBC reported.

Speaking to reporters on Wednesday, US President Donald Trump said he wanted to reach a "fair deal" with China on trade, although he did not elaborate on possible talks with Beijing.

Trump has made China a major target of his aggressive tariffs, raising tariffs on imports from the country to at least 145%. That has prompted a backlash from China, which has raised tariffs on American products to 125%.

US Treasury Secretary Scott Bessent said those tariffs would need to be reduced before talks could continue, but he stressed that Trump would not take such a step on his own.

"Neither side believes these are sustainable levels," Bessent said, a remark that helped fuel a rally in Wall Street stocks Wednesday.

The comments came after the Wall Street Journal reported that the White House was considering cutting its punitive tariffs on China to 50% to ease the negotiations. However, Trump officials would not do so unilaterally, Reuters reported, citing a person familiar with the matter.