The dollar could continue to trade like a ‘risky' currency, Goldman Sachs warns

Goldman Sachs warns the dollar could persist in trading as a 'risky' currency, despite a recent easing of its surprising 2025 relationship with U.S. stocks. The firm indicates that investors are not yet 'out of the woods' regarding potential continued volatility or uncertainty for the greenback.

Analysis

Currency strategists at Goldman Sachs have issued a cautionary note regarding a significant shift in the U.S. dollar's trading behavior. The analysis highlights that the dollar has been trading more like a 'risky' asset in 2025, a surprising development that challenges its traditional role as a safe-haven currency. This shift implies a positive correlation with U.S. stocks, where the dollar strengthens alongside equities rather than acting as a counter-cyclical hedge. Although this dynamic has moderated over the past few weeks, the Goldman team explicitly warns that investors are not yet 'out of the woods,' suggesting that the potential for the dollar to revert to this risk-on behavior remains. The persistence of this trend could have meaningful implications for portfolio construction and hedging strategies that rely on historical currency correlations.

Key Decisions for Investors

• Investors utilizing the U.S. dollar as a portfolio hedge against equity risk should re-evaluate their strategies, as its recent positive correlation with stocks could diminish its effectiveness.
• Monitor the correlation between the dollar and U.S. equity benchmarks closely, as a return to 'risk-on' trading behavior could signal renewed market uncertainty and invalidate traditional asset allocation models.
• Given the warning from a major institution like Goldman Sachs, it may be prudent to reduce outright long or short dollar positions until a more stable trading pattern emerges, thereby mitigating risks associated with this unusual dynamic.