The US fiscal deficit continues to expand. Wondering where the US dollar will go? Wall Street is also thinking about the same question.

Goldman SachsThe Group expects the US dollar to resume its weakest trend in recent history. whereasMorgan StanleyThey think the US dollar will strengthen.

The expansion of the US current account deficit has once again become a hot topic in the foreign exchange market, and its impact also affects other assets. The current deficit as a percentage of GDP is the largest since 2008. At a time when the US economy is rebounding faster than the rest of the world, the deficit continues unabated. The result is that more and more dollars are flowing into foreign hands, either back to US assets or into other fields.

At this point, the opinions of the experts are basically the same. What they think differently is the potential impact of the current account, the broadest measure of trade and investment flows. Forecasters expect the initial value of the commodity trade deficit scheduled to be announced on Friday to set a new record. This is a critical moment for the US dollar, the world's main reserve currency. The dollar has already taken back all of its gains from earlier this year.

For Goldman Sachs, the deficit is the key to its bearish view of the dollar. Bank analysts pointed out that there are currently similarities with 2002-2007, when the dollar fell sharply. Deutsche Bank has also joined this campaign.

Meanwhile, Morgan Stanley and Eurizon SLJ Capital believe that the current environment may be similar to that of the 80s and 90s of the last century. Facing a huge deficit at the time, the US dollar rose. So far, however, the dollar has declined, and the bears seem to have the upper hand.

“On an overall trade-weighted basis, the US dollar is expensive, and non-US assets provide increasingly competitive returns,” said Zach Pandl, Goldman Sachs's co-head of global foreign exchange and emerging markets strategy. “Investors may rotate and leave the long-standing US fixed income and stock markets, causing the dollar to gradually depreciate.”

The Bloomberg US dollar spot index fell 1.3% this month, close to a recent low. The dollar depreciated against half of the Group of Ten (G-10) currencies.

Pandl is “structurally bearish” on the US dollar over the next three years. Goldman Sachs expects the current account deficit to peak at 4.4% of GDP by the end of 2021. This forecast is higher than the median forecast of forecasters, who think the ratio will rise to 3.6% this year, up from 3.09% at the end of last year.