Goldman Sachs: On the surface, the global FX market looks like dollar weakness, but underneath it is more of a 'divergent dollar' and a terms-of-trade shock

Overview

This is a Goldman Sachs global FX strategy report covering USD, GBP, BRL, JPY, terms of trade, HUF, ARS, and the drivers of the dollar. The core message is not a simple bearish or bullish call on USD; rather, it emphasizes that energy shocks, terms-of-trade shifts, policy intervention, political risk, and risk appetite are jointly creating divergence across FX markets. Goldman believes part of the dollar's apparent weakness comes from the AI-driven rally in US equities, but the dollar has quietly strengthened against low-weight or non-trade-weighted currencies, and that strength could broaden further.

Core views

First, political uncertainty in the UK, energy prices, and reduced fiscal room all weigh on Sterling; EUR/GBP still has near-term upside risk, and expressing downside in GBP versus AUD or USD is more attractive. Second, JPY faces fundamental headwinds from high oil prices, US growth leadership, rates staying higher for longer, and a supportive risk backdrop; intervention alone is unlikely to keep USD/JPY moving lower. Third, terms of trade remain an important medium-term driver of FX performance, but Asian currencies have a weaker relationship with commodity terms of trade because of managed exchange rates and the influence of tech exports. Fourth, HUF could still continue to appreciate, with an asymmetric risk/reward profile. Fifth, although the ARS path has been revised stronger, there is limited room for actual exchange-rate competitiveness to improve, and the policy adjustment window is narrowing. Sixth, dollar performance will continue to diverge, and Goldman prefers low-beta, carry-heavy relative-value baskets.

Analysis framework

The report uses a multi-asset macro attribution and relative-value framework, combining GSBEER, changes in terms of trade, the effectiveness of FX intervention per unit of size, real exchange rates, GSDEER/GSFEER valuation, and forward-vs-forecast comparisons to assess the risk/reward of different currencies. The analysis is not centered on company fundamentals, but instead on currency pairs, policy reaction functions, energy prices, capital flows, and global risk appetite.

Methodology notes

• Foreign exchange equilibrium modelGSBEER

  Fits exchange-rate performance to cyclical fundamentals

  The report uses GSBEER to assess EUR/GBP's deviation from cyclical fundamentals and to estimate the fiscal risk premium embedded in sterling.

• Macro driver attributionTerms of Trade

  Impact of terms-of-trade changes on FX returns

  The report argues that since the energy shock, terms of trade have been an important variable for FX returns, especially for relative performance between commodity exporters and energy importers.

• Policy event analysisIntervention impact per $bn

  Two-week impact of USD/JPY per unit of intervention size

  The report standardizes the two-week USD/JPY move after Japan's interventions by the size of the intervention, and concludes that the 2026 effect is closer to April 2024 and less persistent.

• Valuation frameworkGSDEER/GSFEER

  Deviation from bilateral and trade-weighted fair value

  The report uses GSDEER and GSFEER to compare spot rates with fair value and identify JPY, NOK, CNY, KRW, and TWD as relatively undervalued, as well as some currencies as relatively overvalued.

• Real exchange rate analysisReal exchange rate path

  Inflation differentials and nominal exchange rates jointly determine real competitiveness

  The report uses Argentina's real exchange rate path to assess ARS competitiveness and notes that even under the new forecast, improvement in real competitiveness over the next 12 months is very limited.

Asset mapping & comparison

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

• GBP / EUR/GBP

  Sterling is under pressure, and EUR/GBP has upside risk

  Strengths

  Earlier improvements in global risk appetite and cross-border M&A inflows had supported GBP.

  Weaknesses

  Rising UK political uncertainty, fiscal room eroded by the energy shock, and further increases in energy futures weaken Sterling's resilience.

  Comparison

  Current EUR/GBP implies roughly a 1 percentage point fiscal premium, below the roughly 2% level common last year.

  Risks

  If the UK policy outlook improves, energy prices fall, or capital inflows continue, downward pressure on GBP may ease.

• JPY / USD/JPY

  JPY still faces fundamental headwinds, and intervention alone is unlikely to reverse USD/JPY's upward pressure

  Strengths

  Official Japanese intervention and a more hawkish BoJ stance can provide temporary support for JPY.

  Weaknesses

  High oil prices, US growth leadership, rates staying higher for longer, and a favorable risk backdrop all tend to push USD/JPY higher.

  Comparison

  The 2026 intervention effect is similar to April 2024 and weaker than the impact seen after the July 2024 intervention.

  Risks

  If global recession fears rise or the BoJ hikes faster and more aggressively, JPY could receive more durable support.

• HUF / EUR/HUF

  Goldman believes HUF still has asymmetric upside potential

  Strengths

  Lower sovereign risk premium, EU fund disbursements, local bond inflows, and fundamental improvement could all support HUF.

  Weaknesses

  Higher energy prices and possible MNB rate cuts could temporarily weigh on HUF.

  Comparison

  Goldman's 3M EUR/HUF forecast is 355, and the 12M forecast in the table is 345, both pointing to a stronger forint than spot.

  Risks

  If the energy shock worsens, EU fund flows disappoint, or local risk premia rise again, the forint's appreciation path could be constrained.

• ARS / USD/ARS

  ARS has a stronger nominal forecast, but room for competitiveness repair is narrowing

  Strengths

  After Milei's party victory, ARS moved away from the top end of the floating band, easing pressure from low reserves.

  Weaknesses

  Sticky inflation, the re-emergence of a gap between the official and parallel exchange rates, real appreciation, and insufficient reserve accumulation all create pressure.

  Comparison

  Goldman revised its USD/ARS 3/6/12M forecasts to 1,500/1,600/1,800, a stronger path that is closer to forwards.

  Risks

  If spot continues to range-trade while inflation remains sticky, real competitiveness will be eroded further.

• USD

  Dollar performance is diverging, and strength may spread from low-weight currencies to a broader set of G10 currencies

  Strengths

  Resilient US growth, rates higher for longer, persistent energy shocks, and the inability of Asian FX intervention to last all support USD.

  Weaknesses

  The AI-driven rally in US stocks relative to global equities makes the trade-weighted dollar appear weaker.

  Comparison

  The simple-average dollar has clearly outperformed the GS trade-weighted dollar since February 27, showing that index weights mask underlying dollar strength.

  Risks

  If risk appetite remains strong, high-beta commodity currencies may still lead, and USD strength will continue to appear fragmented.

• BRL, HUF, MXN, ZAR vs EUR, SEK, THB

  Goldman's preferred relative-value basket

  Strengths

  The long basket offers carry, some commodity or fundamental-improvement support, and the funding side helps reduce portfolio beta.

  Weaknesses

  Emerging-market currencies remain sensitive to global risk appetite, energy prices, and local policy.

  Comparison

  Compared with a direct one-way USD bet, this basket focuses more on optimizing carry and reducing beta exposure.

  Risks

  A disruptive risk shock, liquidity squeeze, or reversal in commodity prices could weigh on the basket.

Key data

• EUR/GBP fiscal risk premiumabout 1 percentage pointGoldman thinks this premium remains below the roughly 2% level seen for most of last year, so near-term upside risk in EUR/GBP remains.
• USD/JPY intervention impactaround -2.3bp/$bn on 2026-04-30Comparable to around -2.1bp/$bn on 2024-04-29, and materially weaker than around -13.7bp/$bn on 2024-07-11.
• HUF forecastEUR/HUF 3 months 355Goldman set this forecast on April 17 and still sees asymmetric upside in the forint.
• ARS forecastUSD/ARS 3/6/12 months at 1,500/1,600/1,800The forecast was revised from the prior 1,630/1,720/1,870 path to a stronger one, but the report still thinks the improvement in real exchange-rate competitiveness is insufficient.
• Argentina FX reserve target progressabout US$5.5bn purchased in 2026, target US$10bnGoldman Sachs economists think the year-end 2025 target was not met, and external fundamental challenges remain.
• Dollar divergenceSimple-average USD at about 103.6, GS trade-weighted dollar at about 100.6Since 2026-02-27, the simple-average dollar has clearly outperformed the trade-weighted dollar, showing that index weights mask broad-based dollar strength.
• Relative-value basketLong BRL, HUF, MXN, ZAR; funding currencies EUR, SEK, THBThe report believes this combination can optimize carry and reduce beta exposure.
• 12-month high total return forecastTRY 21.8%, NGN 20.8%, COP 10.1%, BRL 8.3%, ZAR 8.0%, HUF 7.8%From the Return Forecasts & Valuations table, reflecting expected returns for high-carry and some emerging-market currencies.

Impact & implications

For portfolios, the report suggests that the dollar trend should not be judged only by the trade-weighted dollar index. If risk appetite remains firm, high-beta and commodity-exporter currencies could continue to lead; if energy shocks persist, inflation pressures rise, or Asian intervention is hard to sustain, dollar strength could broaden further. Strategically, Goldman prefers relative value over a one-way directional bet, emphasizing long positions in currencies supported by carry, valuation, or fundamental improvement while avoiding excessive exposure to a single risk-appetite factor.

Risks

• Further increases in energy prices could intensify pressure on the UK, Asian energy importers, and some European currencies.
• If Japanese intervention lacks macro fundamental support, it may only affect USD/JPY in the short term and fail to establish a lasting trend.
• Sticky inflation in Argentina and insufficient reserve accumulation could weaken the repair of ARS real competitiveness.
• If global risk appetite suddenly reverses, high-beta and emerging-market currencies could face pullbacks.
• Changes in Asian FX management policy could keep the terms-of-trade model's explanatory power for Asian currencies relatively low.

What to watch

• Changes in UK leadership, fiscal policy plans, and energy prices and their effect on GBP's risk premium.
• The BoJ's rate-hike path, the size of official intervention, and whether the US supports more active yen-stabilization measures.
• The relative impact of energy prices and terms-of-trade changes on NOK, AUD, BRL, CLP, and Asian currencies.
• The support provided to HUF by EU fund disbursements, local bond inflows, and the MNB policy pace.
• The Argentine official exchange rate, the gap versus the parallel rate, inflation expectations, and progress in FX reserve accumulation.
• Whether the divergence between the simple-average dollar and the trade-weighted dollar continues to widen or begins to converge.