Analysts at Goldman Sachs believe the current level of anxiety over the dollar is overdone for two reasons
, Exhibit 1 shows the path of trade-weighted USD versus the majors since 2014. The red arrows show the role that ECB and BoJ easing played in driving the Dollar higher, while the pink arrows show the limited role that Fed policy shifts played (the Fed dropped forward guidance in late 2014, giving USD some lift). In short, the Dollar is where it is not because of the Fed, but as a result of shifts in policy from the BoJ and ECB. Of course, the dollar could reverse its 2014 gains, but this would require the ECB and BoJ to wind back stimulus. We forecast the opposite in the case of both central banks. The Dollar could also reverse its 2014 gains if the Fed were to embrace outright easing. But again, we forecast the opposite, with our US economists anticipating a hiking cycle of 300 bps from here through end-2019.
