Are worries about the twin U.S. deficits dragging down the greenback? Is it more about the Trump administration endorsing a weak-dollar policy?

Not so, Goldman Sachs Group Inc. analysts say.

The currency’s slide over the past year is less about what’s going on with U.S. policies and fundamentals, and more about investors preferring the turnaround stories elsewhere, such as in Europe and Japan, the argument goes.

“A favorable risk environment has tended to go hand-in-hand with dollar weakness,” Zach Pandl, co-head of global foreign exchange and emerging markets strategy, wrote in a note to clients. Faster global growth “has favored other economies and their currencies relative to the U.S. and the dollar, and has been the key reason for our ‘soggy dollar’ outlook.”

Among the reasons Pandl highlighted for the dollar underperforming amid an improving global backdrop:

• Global economic strengthening boosts trade volumes, in turn helping the currencies of goods exporters such as South Korea and Malaysia
• Rising commodity prices have helped natural-resource exporters including Chile
• Convergence in monetary policy with the U.S.; Goldman sees countries including Australia and Sweden raising interest rates this year, while the European Central Bank moves toward normalization

Further dollar weakness may be in store, even as the Federal Reserve keeps tightening policy and U.S. Treasury yields climb, Pandl says. That’s in part because some investors are still “structurally long” dollar assets.

Hedge funds and commodity trading advisers have moved to short dollars, but other investors “likely have scope for additional dollar selling,” he wrote. And sovereign players including foreign-exchange reserve managers have yet to shift out of dollar assets, available data suggests, according to Goldman.

As for those U.S. deficits -- the federal-budget gap and the current-account shortfall -- historically the dollar has both risen (such as in the 1980s) and fallen (in the early 2000s) during periods of widening. What’s key is what the Fed is doing alongside, Pandl says. In the early 1980s, Fed tightening bolstered the dollar, while in the early 2000s low rates left the greenback little support.

This time around, the Fed is raising rates and shrinking its balance sheet. Even so, expectations for monetary-policy normalization in Europe and Japan mean there’s less fixed-income demand from those economies even as interest-rate differentials widen for now. And with an improving global environment, “investors may see better equity and foreign-direct investment opportunities in other markets.”

The current period could be similar to the June 2004 to June 2006 tightening cycle, when an increasing rate advantage for the U.S. accompanied a slump in the greenback, Goldman analysis suggests.

Bottom line for Pandl: “While the dollar is unlikely to sink as rapidly as it has year-to-date, we continue to expect trend depreciation over the next 12 months.”