• According to Goldman Sachs’ Chief Economist Jan Hatzius, foreign investor appetite for U.S. assets could decline unless the dollar depreciates further.

 Key reasons:

• The U.S. runs a current account deficit exceeding $1 trillion.
• This deficit is financed largely by foreign capital inflows.
• However, demand might have peaked: the U.S. share in global investor portfolios is already at elevated levels.

   Notable insights:

• While the U.S. still enjoys higher productivity trends compared to Europe, Hatzius notes that this relative advantage is starting to erode.
• The U.S. dollar index has dropped around 9% since the beginning of Trump’s presidency, largely due to his tariff policies which have rattled investors.
•  Even without a recession, Hatzius expects further dollar weakness ahead.
• The Fed might have already considered rate cuts if not for the inflationary pressures caused by tariffs. In short, policymakers are caught between a “growth shock” and an “inflation shock.”

    Goldman Sachs expectations:

• Q1 2025 GDP growth: 0.3% (vs. 2.4% in Q4 2024)
• Q4 2025 annual growth projection: 0.5%
• Three 25 bps rate cuts expected in June, July, and September

   What’s Next

• A persistently strong dollar could make it difficult for the U.S. to sustain its external financing needs. From this perspective, a gradual depreciation of the dollar might be seen as “undesirable but necessary” by policymakers. For investors, this shift could open opportunities in emerging market currencies and non-U.S. assets.