Goldman on the dollar By Investing.com

The market is effectively pricing a tug-of-war between U.S. rate differentials and a partial unwind of the classic dollar-safe-haven trade. The second-order winner from a range-bound dollar is not just the obvious EM and commodity FX basket; it is also any asset class funded in dollars but monetized globally, because a stable funding currency lowers hedging costs and reduces forced de-risking. That matters most for carry and leveraged relative-value strategies, where even a modest drop in dollar volatility can mechanically compress VaR and improve risk parity positioning.

The more interesting signal is the split between major FX and trade-weighted FX: the dollar can look strong versus Europe while still being softer in aggregate. That implies the pain is concentrated in EUR-linked exporters and Europe-sensitive balance sheets rather than across the whole U.S. corporate sector. If U.S. yields stay elevated, the first-order beneficiary is the financial complex through wider net interest margins, but the lagged loser is duration-heavy growth and any asset whose valuation depends on lower discount rates.

The near-term catalyst tree is mostly macro, not event-driven: a hot inflation print, hawkish Fed commentary, or renewed energy disruption could extend dollar support over days to weeks; softer data or a further easing in geopolitical stress could trigger a fast short-covering move lower. The contrarian point is that the consensus may be overestimating how persistent dollar strength can be when global equity breadth improves and China/Japan policy backstops remain active. In that setup, the dollar’s upside is capped, but downside can accelerate if crowded longs use the first dovish surprise to de-risk.

This is a better environment for tactical relative-value than outright USD beta. The highest-conviction setup is to own carry currencies with credible central bank backstops and short the most rate-sensitive Europe proxies, rather than making a big directional dollar call. The risk/reward skews in favor of waiting for a hawkish catalyst to fade into strength, not chasing it here.