Global foreign exchange markets Report Interpretation

Overview

This Global FX Trader update examines how US policy, energy prices, rate differentials, domestic policy settings and capital flows are shaping major and emerging-market currencies. Goldman Sachs sees a broadly low-volatility environment but recommends targeted trades where country-specific fundamentals and policy developments create clearer asymmetry.

Core views

Goldman Sachs expects FX volatility to remain low under a range of likely economic outcomes. Solid US economic performance, attractive prospective investment returns, and the dollar’s exposure to energy and carry themes support USD, while policy-related impulses remain a counterweight. The report says a more hawkish-than-expected FOMC communication, commodity-price changes and improved risk sentiment helped USD recover from the low end of its recent range. However, its economists do not expect the Federal Reserve to tighten financial conditions materially beyond what is already priced, so an under-delivery versus market expectations could again weigh on the dollar. China’s firm currency management is also expected to contain broad USD moves. For JPY, the report argues that expectations for a rapid Japanese policy shift have become demanding. Dissent from Bank of Japan board nominees and Governor Ueda’s indication that the Bank is not behind the curve raise the bar for an October hike. Together with possible further Fed tightening, this reduces the tactical case for short USD/JPY. Longer term, however, Goldman Sachs still sees downside asymmetry in USD/JPY because intervention risk remains elevated, faster BoJ hikes could occur if data require them, and portfolio flows may gradually shift toward domestic Japanese assets. It therefore prefers long JPY versus EUR rather than an outright USD/JPY position near term, while retaining some long-JPY exposure for longer-horizon catalysts. The report remains constructive on CNY. A flatter pace of CNY fixes has allowed USD/CNY fixing to move sharply lower in September ahead of the Trump-Xi summit, leaving more room for offshore CNY appreciation. Goldman Sachs sees a stable trading relationship, an August monthly trade surplus of nearly $120 billion, and continuing FX inflows as supporting gradual appreciation. Weak domestic demand does not alter its view that China needs both currency appreciation and fiscal support to move the economy toward external and internal balance. It forecasts USD/CNY at 6.40 in 12 months and recommends staying short SGD/CNH. For GBP, Goldman Sachs expects the Bank of England’s dovish September communication and likely under-delivery of rate hikes relative to market pricing to sustain upward pressure on EUR/GBP over coming months. It attributes Sterling’s summer outperformance to a lower political risk premium, capital inflows including M&A, and the euro’s greater energy exposure. But it expects those tailwinds to fade, with risks around the Autumn budget, higher energy prices and borrowing costs potentially rebuilding GBP risk premia. A stabilization in energy prices could further expose structural Sterling overvaluation and widening rate differentials. On CHF, the report sees the SNB remaining on hold for the foreseeable future. While the SNB may soften language aimed at countering CHF appreciation and may have shifted to marginal foreign-currency sales, Goldman Sachs does not view this as enough to generate sustained franc outperformance. CHF remains a supportive funding currency in the current setting. Still, net-short positioning means a more hawkish SNB shift could trigger unwinds that amplify CHF strength. For CEE FX, Goldman Sachs attributes much of this year’s movement to the Iran-war-driven rise in oil and gas prices and changing European growth expectations. Its model suggests energy-price increases and a lower EUR/USD should weaken regional currencies against EUR relative to late February. PLN has been especially sensitive to a higher-for-longer global-rates backdrop, and the report views it as an attractive funding currency on carry and spot asymmetry despite recent underperformance. HUF is the most energy-sensitive currency in its rolling-beta analysis, followed by PLN and CZK. Goldman Sachs sees local policy catalysts, including Hungary’s inflation-target revision, Euro-adoption plan and 2027 budget, as HUF tailwinds, but expects high energy prices to constrain a full decoupling from global factors; it favors pairing HUF longs with PLN shorts. For SEK, political developments after Sweden’s closely balanced election are not expected to change the broad fiscal backdrop materially. Instead, energy vulnerability, European cyclical exposure and a relatively lagging Riksbank tightening response remain the main pressures. Because EUR/SEK has risen beyond the level implied by energy and equity sensitivities, Goldman Sachs sees better risk-reward for expressing continued energy pressure through EUR/NOK downside rather than NOK/SEK upside. In non-Japan Asia, higher gas prices and AI-related investment favor Malaysia over Thailand. Malaysia is expected to benefit most in the region from higher gas prices and to receive a large data-center construction impulse through 2027; Goldman Sachs also expects a 25bp Bank Negara Malaysia hike in Q1 2027. Thailand’s Q2 current-account deficit of USD 575mn, its first deficit in eight quarters, reflects higher energy costs and capital-goods imports. The report recommends long MYR/THB with an 8.60 target and a 7.80 stop-loss; the principal stated risk to a bearish THB view is gold prices. For frontier EM, Goldman Sachs continues to favor KZT and NGN longs, supported by higher-for-longer energy prices and elevated carry-to-volatility ratios. KZT’s high NDF-implied yields support carry, although year-to-date spot gains leave it overvalued in the GSDEER model and make carry the main prospective return driver. For NGN, stronger oil prices and an already favorable balance-of-payments outlook create scope for further appreciation despite reserve accumulation constraining recent gains. Goldman Sachs revised USD/NGN forecasts to 1,300 at three months and 1,275 at six months, from 1,325 and 1,300, respectively, and raised its long TRY, NGN and KZT versus USD trade target to 12% from 10%.

Analysis framework

The report compares monetary-policy expectations, rate differentials, energy exposure, external balances, capital flows, positioning and country-specific policy catalysts across currency pairs. It also uses model-based fair-value comparisons and rolling return regressions to identify currencies whose movements are more or less sensitive to oil and natural-gas prices.

Methodology notes

• MacroeconomicsInterest rate parity

  Front-end rate differentials and expected central-bank policy paths

  The report uses differences in expected short-term interest rates and possible policy under-delivery versus market pricing to explain likely moves in EUR/GBP, USD/JPY and other currency pairs.

• Quantitative, Factor, and Portfolio Theory

  Rolling 120-day regression of daily FX returns on daily oil and European natural-gas returns

  Goldman Sachs estimates rolling energy-price betas since 2018 to compare the sensitivity of HUF, PLN and CZK to energy shocks.

• Other

  GSDEER, GSFEER and PPP fair-value comparisons

  The report compares spot exchange rates with Goldman Sachs model estimates and purchasing-power-parity measures to assess relative currency valuation and expected returns.

Asset mapping & comparison

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

• USD

  Supported by US economic resilience, energy and carry themes, but constrained by policy uncertainty and potential Fed under-delivery.

  Strengths

  Solid US economic performance and prospective investment returns.

  Weaknesses

  Policy-related negative impulses.

  Comparison

  China’s currency management may limit broad USD moves.

  Risks

  A Fed outcome below market pricing could weigh on USD.

• JPY

  Near-term preference is long JPY versus EUR, with longer-term downside asymmetry in USD/JPY.

  Strengths

  Potential intervention, possible faster BoJ hikes and eventual portfolio-flow shifts.

  Weaknesses

  High bar for an October BoJ hike and lack of near-term catalysts.

  Comparison

  Preferred against EUR rather than through outright USD/JPY.

  Risks

  Further Fed tightening and slow domestic-portfolio reallocation may pressure JPY.

• CNY

  Constructive gradual-appreciation view.

  Strengths

  Trade surplus, FX inflows and managed fixing path.

  Weaknesses

  Weak domestic demand.

  Comparison

  Expressed through short SGD/CNH.

• MYR/THB

  Recommended long MYR/THB.

  Strengths

  Malaysia benefits from gas prices, AI investment and expected policy tightening.

  Comparison

  Thailand is more exposed to gas imports and has moved into current-account deficit.

  Risks

  Gold-price movements are the main stated risk to bearish THB.

• TRY, NGN and KZT versus USD

  Recommended long basket with a 12% target.

  Strengths

  Higher energy prices and elevated carry support frontier oil-exporting currencies.

  Weaknesses

  KZT is overvalued in GSDEER after year-to-date outperformance.

  Comparison

  NGN has greater scope for spot appreciation than KZT, where carry is the main return driver.

Key data

• USD/CNY 12-month forecast6.40Goldman Sachs expects sustained but gradual CNY appreciation.
• China August monthly trade surplusNearly $120 bnCited as support for continuing FX inflows and CNY appreciation room.
• Thailand Q2 current-account balanceUSD 575mn deficitFirst deficit in eight quarters, driven by higher energy prices and capital-goods imports.
• MYR/THB trade target and stop-loss8.60 target; 7.80 stop-lossRecommended long MYR/THB trade; carry is described as around flat.
• USD/NGN forecasts1,300 at 3 months; 1,275 at 6 monthsRevised from 1,325 and 1,300, respectively.
• TRY, NGN and KZT versus USD trade target12%Extended from a prior 10% target.

Impact & implications

Goldman Sachs views country-specific differences in energy exposure, policy settings and external balances as more important than a broad directional FX call. Its preferred expressions include stronger CNY, MYR versus THB, selected JPY exposure versus EUR, HUF relative to PLN, and long TRY, NGN and KZT versus USD, while it sees scope for GBP underperformance as its recent tailwinds fade.

Risks

• USD could weaken again if the FOMC delivers less tightening than market pricing implies.
• JPY strength may lack a near-term catalyst absent intervention or clearer evidence of portfolio shifts.
• Renewed energy and borrowing-cost pressure around the UK Autumn budget could raise GBP risk premia.
• A more hawkish SNB could trigger short-position unwinds and amplify CHF strength.
• Gold-price movements are the main stated risk to the bearish THB view.

What to watch

• October Fed and BoJ decisions, including the degree of policy tightening and Japanese intervention signals.
• The Trump-Xi summit, CNY fixing behavior, Chinese trade surpluses and FX inflows.
• The UK Autumn budget and whether BoE policy falls short of market pricing.
• SNB FX-language changes and evidence of a shift toward a more hawkish currency stance.
• Hungary’s inflation-target revision, Inflation Report, Euro-adoption plan and 2027 budget.
• Malaysia’s expected Q1 2027 rate hike and Thailand’s external-balance developments.