Dollar is behaving like a "risky" currency, Goldman believes. Is it no longer a "safe haven"?

Analysts at Goldman Sachs have warned that the US dollar may start to trade as a "risky" currency in the short term. Dollar volatility could increase amid the unpredictability of the White House's trade policy and the reallocation of global reserves toward other assets. The most worrying signal in 2025 has been that the dollar often depreciates in tandem with stock market declines. This may indicate that the U.S. currency is losing its former status as a "safe haven" and is becoming a source of instability itself, the bank believes.

Investors should be prepared for the dollar to continue to behave as a "risky" currency characterized by volatility, warned Goldman Sachs analysts Karen Reichgott Fishman and Lexi Kanter. This was reported by Bloomberg. According to Fishman and Kanter, a number of factors can weaken the position of the U.S. currency, which used to be considered a protective asset and demonstrated stability during crisis situations. These include, for example, uncertainty around U.S. duties and Fed independence, concerns about U.S. fiscal sustainability and the diversification of global reserves toward other assets.

One of the most "striking" changes in 2025 is that the dollar is more likely to fall in tandem with the U.S. stock market, Goldman Sachs noted. That's usually common in emerging markets and rare among leading economies like the U.S., adds MarketWatch. While data is still sparse, the dollar has depreciated at the same time as U.S. stocks more than twice as often this year than the average over the previous ten years (through the end of 2024), Bloomberg wrote. This may indicate that the U.S. currency is losing its status as a reliable "safe haven" and is itself becoming a factor of instability, the publication adds.

If this trend continues, it could seriously weaken the dollar's position, analysts at Goldman Sachs believe. Many investors have already started to insure their portfolios with U.S. stocks and bonds against the fall of the U.S. currency - and this, according to experts, only increases the pressure on it. In addition, a rare and alarming scenario is increasingly being observed: both stocks, government bonds and the dollar itself are falling at the same time. This may indicate that interest in U.S. assets in general is beginning to decline, Fishman and Kanter believe.

"While we don't believe the dollar's appeal as a protective asset is gone for good, and correlations have looked more familiar in recent weeks, there is still reason to believe it could quickly start trading as a 'risk-on' currency again," Goldman Sachs analysts noted in a statement to MarketWatch. They added that the changed correlations make dollar strength during periods of risk-aversion less predictable

The dollar index ICE ended the first half of 2025 with its worst performance in history - since its launch in 1973. It fell more than 10% in the first six months. In July, the dollar began to partially recoup losses: the index has gained 1% since the beginning of the month.

"The long-term outlook for the dollar is negative for a variety of reasons: declining global trade, de-dollarization, and a rethinking of hedging strategies. But the dollar has already fallen markedly, and markets rarely move in a straight line. A short-term upward correction is likely," notes Bloomberg strategist Simon White.

"Currency traders really have a lot to think about: a catastrophic budget deficit that no one is eager to reduce, be it Republicans or Democrats. A rift with allies - both militarily and in trade. There are enough potential negative catalysts. And once a trend starts, it's hard to stop," said CNBC this week, Art Hogan, chief market strategist at B. Riley Wealth Management's Art Hogan. The pressure on the dollar may have gone too far, he said, but in terms of fundamentals - there's plenty of reason to worry.

Nevertheless, there are analysts who take a more positive view of the situation. For example, Thomas Matthews, head of Asia-Pacific division of Capital Economics stated that the stock market rally in June-July indicates increased confidence in U.S. assets. He said the dollar's weakness earlier had more to do with the rise of other currencies and a shift in hedging strategies. Wells Fargo, too, called concerns about the dollar's strength exaggerated. According to a strategist at the bank, from a statistical perspective, the dollar remains the centerpiece of global trade and finance and is far from losing its importance.

This article was AI-translated and verified by a human editor