Synopsis:

Goldman Sachs attributes the recent USD decline—despite new tariffs—to market skepticism over their long-term impact and expectations of Fed easing. Specifically, GS argues that ;the market never ascribed a high probability to new tariffs on Canada and Mexico being enacted with any durability.' Instead, concerns over slowing US growth and labor market weakness have dominated, preventing the USD from acting as a safe haven.

Key Points:

1️⃣ Market Doubts Long-Term Impact of Tariffs 🌍

• Investors never fully priced in lasting tariffs on Canada and Mexico.
• CAD underperformance suggests market focus on reciprocal tariffs rather than US gains.

2️⃣ US Growth Slowdown Taking Center Stage 📉

• Signs of softening consumer and labor market data weigh on the dollar.
• Tariff uncertainty is seen as a headwind rather than a USD-positive catalyst.

3️⃣ USD Safe-Haven Demand Remains Conditional 💵

• The dollar strengthens in risk-off events only when Fed cuts are fully priced out or global recession fears dominate.
• Neither condition applies now, limiting safe-haven flows into USD.

4️⃣ Longer-Term Tariff Impact Could Still Support USD 🔄

• Goldman Sachs maintains that more durable tariff implementations and economic disparities will eventually benefit the dollar over time.

Conclusion:

Goldman Sachs sees the USD decline as temporary, driven by market skepticism over tariffs and Fed easing expectations. While near-term uncertainty weighs on the dollar, more entrenched trade disruptions and economic divergence could support USD strength later in the year.