Investors reduce dollar holdings and go back to neutral stance on US — Goldman Sachs

Goldman Sachs President John Waldron said that the recent decline in investor interest in dollar assets should be interpreted as investors returning to a more neutral stance on the currency, rather than a mass flight from these assets. 

According to Waldron, investors began to actively reorient their currency portfolios after the announcement of the tariffs. The reduction in dollar reserves observed since April 2 is more of a getting rid of excesses rather than a mass sell-off.

The recent truce in the trade conflict between the US and China led to a rally in stock markets and pushed the dollar higher, with the S&P 500 and Nasdaq indexes recovering from losses incurred since April 2.

Investors had demand for access to Chinese equities, fixed income products, and the ability for US companies to operate in China despite the difficulties, added Waldron. Most companies are trying to figure out how to mitigate the cost impact of relatively high tariffs.

The imposition of tariffs also stopped the endorsement deals of new mergers and acquisitions in various industries. Their number, which is an indicator of the state of the global economy, fell to lowest in more than 20 years in April.