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Goldman Sachs says we "are still Living in a Dollar World" and 2025 will be about ongoing Greenback strength.
However, the Wall Street Bank's year-ahead forecast also cautions that the Pound is a "diamond in the rough" which means it can withstand the Dollar's onslaught better than most.
The new point forecasts for the Pound to Dollar exchange rate can be seen on request.
Goldman Sachs had thought the USD was always likely to be well supported in 2025, but the election of Donald Trump on November 05 means analysts now also expect tariffs to feature prominently in the U.S. policy mix next year, along with some further fiscal changes.
"The policy mix our economists expect would effectively raise the cost of US imports and lower the cost of doing business domestically. That is a potent combination for the Dollar, especially because it adds further support to those well-established pillars of Dollar strength," says a note from Goldman Sachs.
The Pound-Dollar exchange rate is down 6% from its October highs after markets slashed expectations for Federal Reserve rate cuts following data that showed the U.S. economy was showing signs of fresh strength.
The move accelerated on Trump's win and subsequent developments that suggest he is going to lean heavily on tariffs to extract foreign policy concessions.
Trump on Monday vowed to hit Mexico and Canada with a 25% tariff on "ALL products," saying he would sign an executive order to that effect on his first day in office. The tariff threat came as he said the two countries were being too soft on stemming the flow of migrants across the U.S. border.
"We would view this as a timely intervention from President-elect Trump that sends a very clear signal to the financial markets – that the reaction to the nomination of Scott Bessent was wrong – there will be no soft or balanced approach to trade tariff policy," says Derek Halpenny, Head of Research for Global Markets at MUFG Bank Ltd.
The Goldman Sachs point forecasts for the Pound to Dollar exchange rate in 2025 can be seen on request.