Goldman Sachs: We’re making a major shift in our USD view, EUR/USD forecasts hiked

Goldman Sachs has pivoted its stance on the US dollar, now expecting the first-quarter weakness to not only persist but intensify throughout the year. As a result, the bank has sharply revised its EUR/USD forecasts higher, signaling a broader structural shift in FX markets.

Key Points:

• Base case now sees sustained USD weakness:Goldman has moved what was previously a risk scenario—of declining US economic outperformance—into its central forecast.

• “Exceptionalism” unwinds:The USD’s strength had been underpinned by “exceptional” relative US growth and global capital inflows. With that narrative unraveling, valuation pressures are reversing.

• EUR/USD forecast upgrades:New projections for the pair are:• 1.12 in 3 months• 1.15 in 6 months• 1.20 in 12 monthsThese compare to prior forecasts of 1.07, 1.05, and 1.02, respectively.

Conclusion:

Goldman Sachs is now firmly in the Dollar bearish camp, betting that weakening US fundamentals and fading exceptionalism will continue to drive structural dollar depreciation. The EUR stands out as a key beneficiary, with EUR/USD now expected to rally towards 1.20 by year-end.

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This article was written by Adam Button at www.forexlive.com.