Despite widespread focus on the correlation between the U.S. dollar and U.S. stock performance this year, Goldman Sachs Group strategists argue that the more critical relationship lies between the dollar and the CBOE Volatility Index (VIX).

Historically over the past five years, the dollar has typically moved in tandem with the VIX—a key measure of expected S&P 500 volatility. The greenback tends to strengthen as U.S. equity turbulence rises (and vice versa). However, this dynamic shifted early this year and has remained inverted for most of 2025. Should market panic intensify, the dollar now faces concurrent declines.

A Goldman team including Michael Cahill and Karen Reichgott Fishman noted Wednesday: "Focusing solely on FX-S&P 500 linkages obscures the dollar's lingering fragility, which becomes far more evident through its recent correlation with the volatility index."

The bank emphasized the dollar's connection to equity volatility, stating: "The erosion in the dollar's appeal is more pronounced in its VIX correlation, even as recent moves appear more 'normal.'" The 90-day correlation between the Bloomberg Dollar Spot Index and VIX underscores this shift.