(Bloomberg) -- Currency traders are underpricing the risk of fresh tariffs from the Trump administration, bolstering the appeal of the dollar and the outlook for further gains, according to strategists at Goldman Sachs Group Inc.
“Ultimately, not all tariffs are equal when it comes to FX,” wrote Goldman’s Karen Reichgott Fishman and Lexi Kanter in a Thursday note. “But given the unwind of premium in key crosses in recent weeks, we once again think tariff risks look underpriced, making long dollar exposure now look even more attractive.”
The Bloomberg Dollar Spot Index rallied sharply in the weeks following Donald Trump’s election last November, in large part because investors bet that the incoming administration’s protectionist trade policies would drive inflation and in turn support US yields.
But the greenback’s gains have faded over the last month and Treasuries have rallied as traders consider the potential growth impacts of an escalating trade war. Bank of America’s Athanasios Vamvakidis wrote last week that Trump’s tariff policies could ultimately drag the dollar lower should global trading partners retaliate against the US.
The Goldman Sachs team acknowledged that being long dollars “might be challenging in this environment” but added that bearish bets against the euro and Canadian are relatively inexpensive hedges against tariff risks. Reciprocal tariffs (rather than those against critical imports) represent the greatest upside risk for the greenback, they said.
©2025 Bloomberg L.P.
