Goldman Sachs believes that the dollar will keep weakening due to long-lasting factors. They highlight two key reasons affecting the dollar’s future.

Portfolio Hedging Flows

The first reason is portfolio hedging flows. As institutional independence in the US has decreased, the attractiveness of dollar-denominated assets has faded. This pushes investors to diversify away from the dollar, which creates ongoing pressure on the currency while US policies remain the same. The second reason relates to China’s currency strategy, the yuan. Goldman Sachs argues that China is working on making the yuan more stable to improve its position globally. The yuan is starting to serve as a regional anchor, leading to wider effects in foreign exchange markets. Goldman Sachs points out that for the dollar to keep being weak, these changes need to happen beyond Europe. With China taking a larger role, this could lead to further declines in the dollar’s value. The forces driving the dollar down seem to be long-term trends, indicating that any recent strength is likely just a temporary rebound, not a sign of a turnaround. In the coming weeks, traders using derivatives might see these temporary increases as chances to profit from ongoing dollar weakness. This could involve buying longer-dated put options on dollar-tracking ETFs or shorting U.S. Dollar Index (DXY) futures. There are ongoing flows of capital away from dollar assets, driven by worries about US policy. The latest Treasury International Capital (TIC) report from July 2025 showed a net outflow of private foreign capital for the third month in a row. This continuous selling pressure keeps a lid on the dollar, preventing any rallies from gaining strength.

China’s Currency Strategy

At the same time, China is encouraging a stable, international yuan, which is becoming a strong alternative. Data from the second quarter of 2025 revealed that yuan-denominated trade with ASEAN partners grew more than 15% compared to the previous year, strengthening its role as a regional anchor. Traders should keep an eye on the USD/CNH pair, as ongoing strength in the yuan could impact the overall dollar index. This situation resembles the dollar’s decline from 2002 to 2008, when the euro rose and structural U.S. deficits played a similar role. Back then, selling into dollar rallies was an effective strategy. Thus, traders might think about using times of low volatility to build positions that expect a slow decline, not a sudden fall. For this weakness to last, these currency changes must extend beyond Europe, which seems to be occurring. Look for opportunities to bet against the dollar against a range of currencies, including those from commodity exporters and important Asian economies. This diversification can strengthen your position as the long-term decline continues. Create your live VT Markets account and start trading now.

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