Goldman Sachs believes divergence in FX is widening beneath the surface, and dollar strength could still broaden

Overview

This Goldman Sachs global FX strategy report discusses USD, GBP, BRL, JPY, terms of trade, HUF, ARS and dollar drivers. The core view is that, on the surface, the trade-weighted dollar has weakened and some high-beta commodity currencies have performed strongly, but the underlying drivers still show that energy shocks, U.S. growth resilience, higher interest rates and policy intervention are creating a more complex FX divergence.

Core views

Goldman Sachs believes sterling is under near-term pressure, mainly from UK political uncertainty, fiscal risks and the energy shock; yen intervention cannot sustainably push USD/JPY lower without a change in macro fundamentals; HUF still has asymmetric upside; the ARS policy window is narrowing and real exchange-rate competitiveness remains challenged; and dollar strength may spread from some non-trade-weighted components to a broader set of G10 currencies. Strategically, the report favors long BRL, HUF, MXN and ZAR baskets funded with EUR, SEK and THB to optimize carry and reduce beta.

Analysis framework

The report combines the GSBEER exchange-rate model, terms-of-trade shocks, tech-export adjustments, USD/JPY reactions normalized by intervention size, the real effective exchange rate, forwards and Goldman Sachs 3/6/12-month forecasts, as well as the GSDEER/GSFEER valuation framework, to assess the near-term pressure, medium-term direction and relative value of major currencies.

Methodology notes

• FX modelGSBEER

  Explains EUR/GBP deviations with cyclical fundamentals and risk premium

  The report says EUR/GBP has recently re-priced in roughly 1 percentage point of fiscal premium, but this remains below the roughly 2% premium that was common last year, leaving room for further sterling downside.

• Macro driverterms of trade

  Explaining FX returns through terms-of-trade shocks

  Energy prices and changes in commodity terms of trade are viewed as key drivers of FX returns, creating divergence particularly between commodity exporters and energy importers.

• Policy shock assessmentintervention impact per USD bn

  Normalizes USD/JPY reactions by intervention size

  The report compares the two-week USD/JPY moves after prior Japanese FX interventions and finds that the impact per billion dollars of intervention after 2026-04-30 was smaller, reflecting fundamentals that are unfavorable to the yen.

• Valuation frameworkGSDEER/GSFEER

  FX fair-value and misvaluation assessment

  The report compares major currencies using GSDEER, GSFEER, average valuation and PPP, and combines carry, spot and NEER to produce 12-month return forecasts.

• Real exchange ratereal effective exchange rate

  Measures ARS real competitiveness

  The report notes that the ARS real exchange rate has already appreciated, and that the real effective exchange rate shows an overvaluation gap of about 12% versus the five-year average, indicating limited room for competitiveness gains.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• GBP

  Negative

  Strengths

  A prior rebound in global risk sentiment and cross-border M&A inflows had supported sterling.

  Weaknesses

  Rising UK political uncertainty, energy-shock erosion of fiscal space and continued increases in energy futures.

  Comparison

  The report sees a short sterling expression versus AUD or USD as more attractive than a pure EUR/GBP trade.

  Risks

  If policy uncertainty eases or risk sentiment remains very strong, sterling pressure may moderate temporarily.

• JPY

  Negative

  Strengths

  A faster and steeper BoJ hiking path could be a catalyst for sustained yen strength.

  Weaknesses

  High oil prices, the U.S. growth advantage, higher-for-longer rates and positive risk sentiment all push USD/JPY higher.

  Comparison

  The 2026 intervention effect is closer to April 2024, with weaker persistence than in other intervention episodes.

  Risks

  If global recession fears rise sharply or the BoJ turns clearly more hawkish, USD/JPY could decline.

• HUF

  Positive

  Strengths

  Lower risk premia, improving macro fundamentals, potential EU fund disbursements and local bond inflows support HUF.

  Weaknesses

  Rising energy prices and a more gradual MNB easing cycle may slow the pace of appreciation.

  Comparison

  Historically in Hungary, narrowing yield spreads has often coincided with HUF strength, reflecting an improved sovereign risk premium.

  Risks

  If energy prices keep rising or EU fund progress disappoints, the HUF appreciation path could be impeded.

• ARS

  Cautious

  Strengths

  After the Milei camp's midterm victory, ARS moved away from the upper end of the floating band, easing pressure on foreign reserves.

  Weaknesses

  A small gap has re-emerged between the official and parallel exchange rates, while sticky inflation and rising expectations erode real competitiveness.

  Comparison

  The forecast path was adjusted from near the top of the floating band to closer to forwards, but the real exchange rate only improves modestly.

  Risks

  Political and social challenges, sticky inflation and insufficient reserve accumulation could further narrow the policy window.

• USD

  Divergent but constructive

  Strengths

  U.S. growth resilience, rising inflation, higher rates and concerns about the duration of the energy shock support broadening dollar strength.

  Weaknesses

  The trade-weighted dollar has recently weakened due to AI-driven U.S. equity outperformance and intervention in some Asian FX markets.

  Comparison

  The simple-average dollar index has significantly outperformed the GS trade-weighted dollar index, showing that dollar strength depends on weighting and the currency basket.

  Risks

  If risk sentiment remains strong, high-beta commodity currencies could continue to outperform, keeping dollar performance divergent.

• BRL

  Relatively positive

  Strengths

  Brazil's terms of trade and U.S. equity performance explain most of BRL's recent moves, with actual returns above model estimates.

  Weaknesses

  CDS residuals, the constant term and U.S. 10-year real yields make negative contributions.

  Comparison

  BRL is one of the recommended long basket legs, alongside HUF, MXN and ZAR, as a carry-optimized expression.

  Risks

  If energy or commodity prices continue to fall, commodity-exporter currencies could underperform relatively.

Key data

• EUR/GBP fiscal premiumabout 1 percentage pointThe model shows that the premium has already recovered, but it remains below the roughly 2% level that was common last year.
• USD/JPY impact two weeks after intervention2026-04-30 about -2.3 bps/US$bnWeaker than the roughly -13.7 bps/US$bn seen on 2024-07-11, indicating that intervention is constrained by fundamental headwinds.
• HUF forecastEUR/HUF 3-month 355Goldman Sachs set this forecast on April 17, judging that HUF appreciation should remain gradual but still asymmetric.
• ARS forecastUSD/ARS 3/6/12 months 1,500/1,600/1,800ARS forecasts were revised up from the prior 1,630/1,720/1,870 path, but the report still flags limited improvement in real competitiveness.
• Dollar performance divergenceSimple-average USD around 103.6, GS trade-weighted dollar around 100.6Index performance since 2026-02-27 shows that dollar strength is more pronounced in the non-trade-weighted components.
• Recommended relative value basketLong BRL, HUF, MXN and ZAR; funding currencies EUR, SEK and THBThe goal is to preserve carry while reducing beta and shock risk under a mild risk-appetite baseline.

Impact & implications

For investors, the key takeaway is not a simple call for the dollar to go one way or the other, but a need to distinguish between the trade-weighted index, the simple-average dollar, commodity-exporter currencies, energy-importer currencies and Asian currencies affected by policy intervention. If the energy shock persists, it could support the dollar and some commodity/high-carry currencies while weighing on sterling, the yen and some import-dependent currencies.

Risks

• If the energy shock fades quickly, commodity-exporter currencies and high-carry currencies could give back relative gains.
• If global risk sentiment deteriorates, the report's preferred high-carry basket could face deleveraging and liquidity shocks.
• Japanese, Asian or other FX interventions could temporarily distort model signals and dollar moves.
• The UK political path, fiscal policy and energy prices remain uncertain and could change sterling's risk premium.
• Argentina's sticky inflation, insufficient reserve accumulation and social-political challenges could renew pressure on the ARS adjustment path.

What to watch

• The probability of UK leadership changes, fiscal policy plans and the effect of energy prices on fiscal space.
• The BoJ hiking path, official intervention data releases and whether the U.S. supports more aggressive yen-stabilization action.
• Whether energy prices and terms of trade continue to support commodity-exporter currencies.
• The intensity of Asian FX intervention and whether tech exports continue to offset worsening commodity terms of trade.
• The gap between Argentina's official and parallel exchange rates, inflation expectations, reserve accumulation progress and the position of the floating band.
• Whether the divergence between the GS trade-weighted dollar and the simple-average dollar converges or continues to widen.