US Dollar Outlook: Goldman Sachs Exchanges Explains Why Strength May Persist

The Goldman Sachs Exchanges episode features host Chris Hussey speaking with Brian Dunne, head of Americas FX options trading in Global Banking and Markets, about whether 2026 is shaping up to be a strong US dollar year.

Dunne argues that price action in the second quarter and into early third quarter points to ongoing dollar strength rather than a one-off spike. He identifies three primary drivers: US geopolitical tensions with Iran, continued resilience in the AI trade and US corporate earnings, and a more hawkish tilt in Federal Reserve communication.

According to Dunne, these forces together have created a backdrop where the US stands out versus the rest of the world on growth, policy, and earnings. He repeatedly frames the current environment as one where the probability distribution for a stronger dollar is, in his view, underpriced by markets.

The conversation is framed as of July 9, 2026, with Hussey and Dunne emphasizing that these are time-specific observations rather than evergreen conclusions. Retail FX and macro-focused equity investors may find the discussion particularly relevant for understanding how one Goldman Sachs desk is thinking about US dollar risk and opportunity.

Dunne’s core thesis is that, as of July 2026, the macro setup still favors the dollar. He points to real rate differentials—policy rates adjusted for inflation expectations—as a key anchor. In his view, those differentials still point to the dollar having appreciation value into year-end, even if the Federal Reserve simply stays on hold.

He links this to what he calls US exceptionalism. Dunne notes that the AI trade has remained largely intact and argues that many of the major companies at the forefront of the AI boom are US‑denominated, helping support strong US corporate earnings. That concentration of perceived innovation and profit growth, according to him, reinforces global demand for US assets and by extension the dollar.

On monetary policy, Dunne stresses that markets may be underpricing the risk of a more hawkish Fed path. He cites the shift in the Fed’s dot plot between March and June—from no voters penciling in a hike to nine voters signaling at least one. In his view, this moves the distribution of outcomes in a dollar‑positive direction, even though he acknowledges that markets have already partially repriced after the Fed chair’s initial press conference.

To support his argument, Dunne walks through several concrete data points and developments. On the Fed, he notes that after Chairman Worsh’s first press conference, markets initially priced in a more hawkish path, then partially reversed, but still maintain roughly "six or seven basis points" priced for July and "a little bit more than a full hike" by year‑end.

He highlights the June Summary of Economic Projections, where no Federal Open Market Committee voters had penciled in a hike in March, versus nine voters signaling at least one hike by June. According to Dunne, this represents a "materially more hawkish" shift in committee thinking.

Beyond the Fed, he cites the conflict between the US and Iran as an important tail risk that has already influenced rate and FX markets. He argues that during the "peak fear" from that conflict, expectations for rate hikes at the European Central Bank and Bank of England surged and have since been "almost completely" priced out, leaving those central banks looking relatively dovish compared with the Fed.

Dunne adds that when he strips out inflation to look at real rate differentials, models on his desk suggest the dollar "should be 2, 3, 4% higher" depending on the currency pair. He also notes that FX option volatility in developed‑market pairs is currently within the sub‑10th percentile of the last five years, which he sees as a favorable backdrop for using options to express dollar‑bullish views.

Hussey presses Dunne on dollar debasement and reserve diversification, themes that often surface in retail debates about long‑term dollar risk. Dunne recalls that one 2025 concern was US tariff policy, which some framed as a kind of global tariff. He says that while his team expects reserve diversification to continue over time, they have not seen a substantial acceleration beyond what pre‑existing trends would imply.

Another concern he outlines is the "petrodollar" question. With energy traditionally priced in dollars, Dunne notes that the US–Iran conflict raised fears that Iran might start charging for transit through the Strait of Hormuz in Chinese yuan instead of dollars. He acknowledges that, in theory, such a move could shift global currency demand.

However, Dunne underscores that, as of the recording date, his desk has "not seen that at all" in practice. His base case is that gradual diversification of reserves remains the path of least resistance, but actual supplanting of the dollar’s reserve‑currency role is "not on the radar in the near term" from his perspective.

He also flags risks around Japan. Despite the Bank of Japan raising rates to levels he characterizes as the highest in "30 or 40 years," Dunne argues markets still view Japanese policy as easy relative to inflation, limiting appreciation pressure on the yen. He sees structural weakness in the yen persisting absent more hawkish fiscal and monetary stances or a shift in Japanese pension investment policy away from dollars and toward domestic assets.

In terms of positioning, Dunne characterizes markets as "very set up for carry" into the summer of 2026. He points to selected emerging markets such as Brazil and Egypt as places where investors can currently earn "quite a decent amount of carry," and he states that his team is bullish on those opportunities.

For developed markets, his preferred expression is long US dollars against G10 funders. He cites the ability to earn roughly 3–4% annualized carry being long USD versus those lower‑yielding currencies. From his perspective, the main tails over the next 3–6 months skew toward a higher dollar: either from a re‑escalation of the US–Iran conflict that pushes energy prices higher, or from a more hawkish shift by the Fed that forces markets to price in multiple hikes or a new hiking cycle into early next year.

Dunne highlights two specific hedging and trading expressions: he likes dollar‑higher versus the Swiss franc as a trade, and dollar‑higher versus the Chinese yuan as a hedge. With developed‑market FX option volatilities very low on his metrics, he prefers to use options, mentioning dollar‑Swiss call spreads into year‑end that he says can offer "seven to eight times" payout, and one‑year dollar‑CNH calls with strikes "anywhere above seven."

Asked whether favoring carry implies he expects a flat dollar, Dunne responds that his valuation and flow work both still point to further upside. He reiterates that, looking at real interest‑rate differentials, his models suggest the dollar should be modestly higher versus several currencies, reinforcing his constructive stance as of July 2026.