Strategists at investment bank Goldman Sachs Inc. — Dominic Wilson, Kamakshya Trivedi, and Vickie Chang — consider that the U.S. dollar will gradually strengthen and continue to grow. However, investors will still face the impact of inflation and high interest rates next year.
As Goldman Sachs stated, the dollar remains to have some advantages over other currencies, as the U.S. economy and labor market show stability. Other central banks, in turn, are eager to catch up with the pace of rate increases that the Federal Reserve (the Fed) has set.
At the same time, the bank’s strategists underline that the dollar’s rise will be more volatile compared to the previous year because markets will remain extremely vulnerable to high inflation and poor growth.
According to the Fed’s forecast, a probability of an outright recession in the U.S. over the next 12 months is about 35%. Therefore, the recession is likely to be avoided. Besides, other countries’ concerns about a possible economic downturn only spur the dollar’s growth, increasing its attractiveness among other currencies. Analysts also suggested that the dollar might grow about 3% more on a trade-weighted index basis.
It’s worth noting that Federal Reserve Bank of St. Louis President James Bullard, on Thursday, announced a required minimum of interest rates range from 5% to 5.25% in the current situation, therefore, they have to be raised.
Also, Goldman Sachs suggested that in case China soon will slow down its policy against COVID-19, or geopolitical tensions in Eastern Europe will suddenly decline, then the U.S. dollar might turn sooner than it was forecasted.