Goldman Sachs analysts say the outlook for the U.S. dollar is being shaped by what they describe as a surprisingly limited supply shock from ongoing disruptions in the Middle East, even as energy markets remain a significant risk for foreign exchange. In a research note, the bank labeled the situation "the curious case of the shrinking supply shock," arguing that the economic sting from higher energy costs and product shortages has so far been less obvious than earlier expected.
Goldman observed that "after a much longer-than-expected disruption to energy flows, the impact so far looks much less conspicuous than what we would have expected at the start of the conflict." That assessment underpins the bank's view that while commodity prices and supply dislocations are reshaping global balances, the immediate macroeconomic consequences have been muted relative to initial projections.
The firm continues to see differences in economic momentum across regions as a central driver for currencies. Goldman has revised down its global growth forecasts, applying sharper reductions outside the United States, particularly in Asia-Pacific economies excluding China. By contrast, the U.S. growth outlook has held up comparatively better, widening the growth gap between the United States and many other regions.
That divergence has provided near-term support to the dollar. Goldman noted this dynamic in its short-term forecasts, saying that "broad Dollar depreciation [is] delayed" in its three-month foreign exchange outlooks. The bank highlighted resilience in activity indicators as a contributor to this outcome: "most of our higher frequency activity trackers have held up surprisingly well," it wrote, suggesting that accumulated inventories and more adaptable supply chains may be softening the immediate impact of disruptions.
Goldman cautioned, however, that this apparent resilience may be temporary. If global supply proves more elastic than the bank currently expects, it acknowledged the possibility that its positioning could be conservative - specifically, that it might be "too cautious on cyclical currencies like AUD and too optimistic on the Dollar." In other words, stronger-than-anticipated supply responses could reduce pressure on cyclical exchange rates and erode some of the dollar's current support.
At the same time, the bank warned of asymmetric risks that could reinvigorate commodity pressures. Limited traffic through key shipping routes and early signs of broader supply stress, particularly in Europe, keep upside risks to commodity prices elevated, the note said. Goldman urged markets to remain alert to "continued upside risks to commodity prices" and to the "almost-mechanical impact" that higher energy costs can exert on current account balances.
Within this context, the bank argued that European currencies might still be underestimating the chance of tighter energy supply, even though market pricing has started to adjust in recent sessions. The note therefore frames a scenario in which the near-term durability of the dollar reflects both relative U.S. resilience and lingering commodity-related vulnerabilities elsewhere.
Key takeaways
- Goldman describes the current disruption as a "shrinking supply shock," with less visible economic impact than initially expected - affecting currency markets and trade-sensitive sectors.
- Widening growth differentials, with sharper downgrades outside the U.S., have supported the dollar in the near term and delayed broad dollar depreciation in three-month FX forecasts.
- Commodity and shipping risks remain elevated, posing potential stress for energy-importing regions and current account balances.
Sectors and markets affected
- Foreign exchange markets, particularly cyclical currencies such as AUD and major European currencies.
- Energy and commodity markets, owing to elevated upside price risks.
- Trade and current account-sensitive sectors in Europe and other regions facing tighter supply.
Risks and uncertainties
- Limited shipping traffic and early signs of broader supply pressures could push commodity prices higher, affecting energy-dependent economies and trade balances.
- If global supply proves more elastic than Goldman expects, the bank's caution on cyclical currencies like AUD and optimism on the dollar could prove misplaced, altering FX dynamics.
- European currencies may be underpricing the risk of tighter energy supply, leaving those markets exposed to further adjustments if energy disruptions intensify.