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Rola Khaleda, FT editor, chooses her favorite stories in this weekly newsletter.

The writer is the chief economist in Goldman Sachs

I admit this: I often avoid questions about the dollar. A large group of academic literature and my own experience have taught me as an economic prediction that prediction rates are more difficult than predicting growth, inflation and interest rates.

But with all the obligatory humility, I think the decrease of the last dollar of 5 percent is widely on its trade.

Federal Reserve data shows that the real value of the dollar still stands near two standard deviations higher than the average since the beginning of the floating exchange rate in 1973. The only two periods were the only Teritanic with similar evaluation levels in the mid-1980s and early 2000. Both paved the stage of declines of 25-30 percent.

In addition to the continuous wallet flows in the American assets and the superiority of the country’s shares, the dollar’s estimate sharply strengthened the US share in the governor of the global investors. The International Monetary Fund estimates that non -American investors are now carrying 22 trillion in American assets. This may represent a third of its common portfolios-half of this in stocks, which are often not overlooked. The decision of non -American investors to reduce their exposure in the United States will definitely lead to a significant decrease in the dollar.

Indeed, the frequency is likely to be by non -American investors in adding it to their American governor most likely to the dollar. This is because accounting for payment balance means that the deficit in the current American account of 1.1 Tarsel must be funded through the flow of net capital of 1.1 groans per year. In theory, this can come through foreign purchases of American governor’s assets, foreign direct investment in the United States, or US foreign asset sales. In practice, however, most fluctuations in the American current account balance correspond to the fluctuations in foreign purchases of the origins of the US Portfolio. If non -American investors do not want to buy more American assets at their current prices, these prices must decrease, the dollar must weaken, or (probably) both.

These observations will not be equally important if the American economy is appointed to continue the superiority of its peers, as was the case for most of the past two decades. But this seems unlikely, at least in the next two years. In Goldman Sachs, we recently reduced our growth expectations in all major economies on the back of the tariff, but anywhere more than the United States. We reduced our appreciation for the growth of the United States in GDP from the fourth quarter from 2024 to the same period to 0.5 percent of 1 percent. With gross domestic product grows slowly at best, a sharp rise in uncertainty in American policy and questions about federal reserve independence, we expect non -United States investors to brake their appetite for their American assets.

The decrease in the value of the dollar should not be confused with the loss of the dollar’s position as the dominant currency in the world. With the exception of severe shocks, we believe that the dollar’s advantages as a global way to exchange and store the value are very firm so that they cannot be overcome. We had great movements in the exchange rate without losing the dominant state of the dollar in the past, and our main expectation is that the current step will not be different.

What are the economic consequences of the weakest dollar? First, it will exacerbate the bullish pressure related to tariffs on consumer prices. The tariff tariffs alone will increase the basic inflation – as measured by the Personal Consumption Expenditure Expenses Index – from 2.75 percent now to 3.5 percent later this year, and we estimate that the decrease in the value of the dollar can add 0.25 degrees Celsius or so. While this is modest, the decrease in the value of the dollar enhances our view that the “occurrence” of the US Supreme tariff will often fall on American consumers, not foreign producers.

Second, the dollar is not only more than import and consumer prices, but also reduces export prices (measured in foreign currency). In the medium term, this relative transformation of prices should help reduce the American trade deficit, which is one of the Trump administration’s goals. Consequently, American policy makers are unlikely to stand in the way of a decrease in the value of the dollar, even without any kind of “Mar Lago Agreement”.

Third, the weakest dollar, in principle, can reduce financial conditions and help keep the American economy out of recession. But consumption drivers. It can compensate for a deducted appetite for American assets, including cabinet leaves, the effect of the weakest currency on financial conditions.

In any case, the most important specific about whether the United States is entering the recession is not the dollar. The decision to implement an additional “mutual” tariff after a temporary stop for 90 days, the ongoing American trade war, or the additional definitions of the aggression of the commodity can make the recession inevitable, regardless of where the dollar goes.