Goldman Sachs flags shrinking supply shock in USD outlook, sees delayed dollar weakness

Goldman Sachs says the U.S. dollar outlook is being shaped by an unexpectedly muted supply shock from ongoing Middle East disruptions, even as energy markets remain a key risk for FX.

In a note, the bank describes the situation as “the curious case of the shrinking supply shock,” arguing that while higher energy prices and product shortages are reshaping global balances, the real economic impact has so far been less visible than initially feared.

“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,” Goldman said.

The bank continues to see divergence in global growth as a central driver for currencies. It has revised down global growth forecasts, with sharper cuts outside the U.S., particularly in Asia-Pacific economies excluding China, while the U.S. outlook has held up relatively better. That widening gap has supported the dollar in the near term, with Goldman noting that “broad Dollar depreciation [is] delayed” in its three-month FX forecasts.

Still, the resilience in activity data has surprised analysts. Goldman pointed out that “most of our higher frequency activity trackers have held up surprisingly well,” suggesting that accumulated inventories and more flexible supply chains may be cushioning the blow—for now. This could mean the firm is “too cautious on cyclical currencies like AUD and too optimistic on the Dollar” if global supply proves more elastic than expected.

At the same time, risks remain skewed. Limited traffic through key shipping routes and early signs of broader supply pressures—especially in Europe—are keeping commodity price risks elevated. Goldman cautioned that markets should stay alert to “continued upside risks to commodity prices” and the “almost-mechanical impact” of higher energy costs on current account balances.

In that context, the bank argues that European currencies may still be underpricing the risk of tighter energy supply, even as markets have started to adjust in recent sessions.