Goldman Sachs: Dollar Strength May Fade If Iran War Impacts Economic Growth

On March 25th, Goldman Sachs currency strategists stated that the dollar's rally since the outbreak of an Iran war could slow if currency and interest rate markets shift their focus from the inflationary consequences of the conflict to growth concerns. "While markets have largely priced the oil shock as an inflation and terms-of-trade event, a pivot to greater downside growth risks could cap broad USD appreciation against G10 currencies," wrote Isabella Rosenberg, a currency strategist at Goldman Sachs, in a Tuesday note. Analysts said that in a scenario where growth concerns lead to a risk-off environment, particularly in equities, the Japanese yen and Swiss franc would likely see the largest gains against the dollar as safe-haven currencies. The report noted that a focus on growth risks would also lead to a "significantly worse outlook" for emerging market currencies. While Goldman Sachs still expects the dollar to appreciate against G10 currencies in such a scenario, it may struggle to maintain the pace of its March surge.