The dollar will fall further

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The writer is a chief economist at Goldman Sachs

I admit it: I often avoid questions about the dollar. As an economic forecast, a large body of scientific literature and my experience has taught me that the forecasting of exchange rates is difficult to predict inflation and interest rates.

However, I believe that it is very humble that it is significantly further to increase the impairment of 5 percent on a large-scale trade.

Federal reserve information shows that the true value of the dollar was still in the early two historical periods since the period of the period floating in 1973 and in the early two historical periods and in the early 2000s. Both set the stage for depreciation of 25-30 percent.

The ongoing portfolio sharply sharply the US share in the US assets and the country’s shares and the country’s share in the global investor portfolio. The IMF estimates that non-US investors are $ 22,000 in the United States. Perhaps perhaps a third of the combined portfolios – and the half of it is often in capital without currency hedging. The decision of the United States to reduce the United States to the United States is almost, of course, certainly will result in depreciation of the dollar.

In fact, the United States will not want the United States investors to add US portfolios, probably dollars. The reason for this, the balance of payments should be funded through $ 1.1 per cent of the US current account deficit, a $ 1.1st capital flow per year. In the theory theory, it can be built from the US portfolio assets, foreign investment or US foreign assets in the United States. However, most swings in the US current account balance are suitable for swings in the external purchase of the US portfolio. If US investors do not want to receive more US assets with their current prices, these prices must drop, or do the dollars should be weakened or (most likely).

These observations continued to prefer their peers, as in the last two decades of the US economy, which would not matter. But this is not possible for at least the next few years. In Goldman Sachs, we have recently cut off our growth forecasts in all major economies behind tariff shock, but there are no more for the United States. In the fourth quarter of the United States, we have reduced the growth of GDP to the fourth quarter of this year. GDP and corporate profits, the sharpest growing corporate gain, the uncertainty of US policy and questions related to the Fed independence, we expect the appetite to the United States for the United States.

Dollar depreciation should not be confused with the loss of the situation of the dollar as the world’s dominant currency. The advantages of excessive blows are more than a global exchange and the preferences such as a global exchange and store survey, but to other currencies. In the past, we moved a large exchange rate without losing the dominant status of the dollar, and our main expectations are no difference in current action.

What are the economic consequences of a weak dollar? The first will further increase the tariff pressure on consumer prices. Proposals will only push the main inflation – personal consumer expenditure index – 3.75% of this year can add 3.75 percent to 3.75 percent. Although this is humble, dollar depreciation, not foreign producers of higher US tariffs, but strengthens our opinion that they will fall according to American consumers.

Second, a weaker dollar increases only import and consumption prices, but also reduces exports (measured in foreign currency). Medium-term, this relative price shift should help you reduce the US trade deficit, one of the goals of the Trump Administration. Therefore, US politicians are less likely to stand in the way of the dollar value without the “Mar-A-Lago Accord.

Third, a weaker dollar can simplify the financial situation, and can protect the US economy from the recession. However, drivers in depreciation. US assets can replace the impact of treasury securities, the financial conditions of a weaker currency.

In any case, the United States is the most important part of the absence of the dollar. After the current 90-day break, the decision to implement additional “mutual” tariffs, the tariffs, which are ongoing US-China trade war or aggressive additional goods, may make a passionate tariff, regardless of where dollars go.