Is the US dollar still irreplaceable? Goldman Sachs: Pressure for asset diversification may trigger a price storm

When global investors begin to question the dominance of the US dollar, they may find that the available safe havens are surprisingly few.

Despite the dollar index falling more than 10% this year, Goldman Sachs analysts warn that the limited supply of alternative assets such as the Swiss franc, precious metals, and Bitcoin may trigger severe market volatility and drive nominal asset prices to be reassessed as institutions diversify their dollar exposure.

On July 7, Mark Wilson, Managing Director and Partner at Goldman Sachs, wrote in a research report that the rising risk of unsustainable global fiscal paths is testing the resilience of the dollar. However, due to the scarcity of credible alternative currencies, the diversification efforts themselves may become a catalyst for price volatility. Wilson believes that the main alternative options currently include only a few varieties such as the Swiss franc, precious metals, and Bitcoin. This scarcity means that investors' diversification behaviors will produce excessive price shock effects.

Limited Options Beyond the Dollar

According to Goldman Sachs, although the demand for diversification away from dollar assets is rising among global investors, the reality is that the available alternative assets are limited. The market capacity of assets such as the Swiss franc, precious metals, and Bitcoin is far less than that of the dollar, and if there is a large influx, prices will experience "non-linear" severe fluctuations.

The example of the Swiss franc highlights this issue. According to Wilson's research, the continuous strengthening of the Swiss franc has become a core concern for local investors, forcing the Swiss central bank to return to a zero interest rate policy (ZIRP).

For global investors, the lesson from the Swiss case is that even high-quality alternative currencies face limits in their market capacity. Goldman Sachs observes that the current fiscal reform process in the Eurozone is temporarily stalled, and after the tariff resolution gradually takes effect on July 9, the market focus may return to industrial fundamentals.

Exchange Rate Fluctuations Affect Asset Allocation

Goldman Sachs believes that if global investors significantly diversify away from dollar assets, it will not only impact the foreign exchange market but may also drive the repricing of nominal assets such as global stock markets.

At the same time, US stocks have reached new highs under multiple favorable stimuli, with institutional funds continuously flowing into tech giants and the AI sector, indicating that the demand for dollar assets remains strong. Goldman Sachs expects that with narrowing interest rate differentials and global policy changes, the repricing of dollar assets and diversification will become the focus of the market.

Goldman Sachs predicts that the Federal Reserve will cut interest rates three times in the next six months and two more times in the first half of 2026. Although the dollar performed weakly in the first half of the year, the pace of policy adjustments by the Federal Reserve still has uncertainties compared to other central banks. As interest rate differentials gradually narrow, the dollar exchange rate may face further adjustments, but in the absence of strong alternative assets, dollar assets still hold attractiveness