From Goldman Sachs research, this is Allison Nathan. Welcome to Top of Mind, a podcast that explores

macroeconomic issues on the minds of our clients. In this episode, we're focusing on what's in

store for the U.S. dollar.

After the dollar surged in late March, as investors rushed to its safety amid the global

onset of the corona crisis, its value has since declined sharply to the lowest level in over two

years. As uncertainty about the virus trajectory and the global economic recovery continues to

loom large, whether this retrenchment marks the start of a multi-year dollar down cycle, and even

more fundamentally, an erosion of the dollar's dominance in the global monetary system is top of

mind. To begin, I first asked Zach Pandell, Goldman Sachs co-head of global foreign exchange,

rates, and emerging market strategy research for some context on why the dollar rallied with the

onset of the pandemic earlier this year, and what explains the general weakening trend since?

The most important thing to remember is that the U.S. dollar is like two currencies.

It's a domestic currency, but it's also an international currency.

The dollar denominates many goods and assets outside of the U.S. economy.

And this unique global role for the dollar creates a negative correlation between the value of the currency and the health of the global economy.

When the global economy is doing well and growth is high, the dollar tends to weaken.

And when the global economy is doing poorly and heads into recession, the dollar tends to strengthen.

These global developments have had a bigger influence on the recession, the dollar tends to strengthen. These global developments have

had a bigger influence on the value of the dollar this year and frankly in many recent years

than the performance of the U.S. economy relative to the rest of the world. So the dollar shot up in

value during the beginning of the coronavirus recession, even though the Fed cut rates down to zero,

reflecting this flight to quality or the international role of the dollar.

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