Group 1 - The core viewpoint of the article is that the US dollar is currently overvalued by approximately 16%, driven by global capital chasing the attractive returns in the US [1][2][3] - As the US return advantage diminishes, the overvaluation of the dollar is expected to gradually correct, indicating potential mid-term adjustment pressure on dollar-denominated assets [2][9] - Goldman Sachs employs two primary models, GSDEER and GSFEER, to assess dollar valuation, revealing that the actual trade-weighted dollar index is about 16% higher than its fair value [3][4] Group 2 - The GSDEER model, an enhanced version of the purchasing power parity (PPP) model, suggests that the actual exchange rate tends to revert to a long-term mean, influenced by productivity and trade condition differences [4][5] - The GSFEER model focuses on economic imbalances, linking currency valuation to a country's current account and its "standard level," indicating that the dollar is overvalued by approximately 17% [5][6] - The current US current account deficit is around 4%, and if it narrows to 2.6%, it could lead to a 16.5% adjustment in the dollar; further reductions to 2% and 1% could result in 22% and 31% depreciation, respectively [7][8] Group 3 - The research highlights that the degree of dollar overvaluation is highly dependent on the assumptions regarding the current account "standard level," with the US being a relatively closed economy [8] - Historical examples, such as the rapid depreciation of the British pound post-Brexit and the euro during the gas price shock, illustrate that currencies can adjust quickly to reach fair value [8][9] - The article emphasizes that once fair value is reached, currencies can overshoot, and the persistent overvaluation of the dollar may witness gradual adjustments as the US relative return advantage weakens [9]

Core Viewpoint - Goldman Sachs analysts indicate that the US dollar is currently overvalued by approximately 16%, driven by global capital chasing the superior return prospects of the US. As the US return advantage diminishes, the overvaluation of the dollar may gradually correct, suggesting potential mid-term adjustment pressure on dollar-denominated assets [1][4]. Valuation Models - Goldman Sachs employs two primary models, GSDEER and GSFEER, to assess dollar valuation, revealing that the actual trade-weighted dollar index is about 16% above its fair value [2]. - The GSDEER model, an enhanced version of purchasing power parity (PPP), shows that the dollar is overvalued by approximately 15% against the trade-weighted index, particularly against the yen, yuan, euro, and Canadian dollar, with the most significant mismatches against the yen and yuan [2]. - The GSFEER model, which focuses on economic imbalances, indicates that the dollar is overvalued by about 17%, with over 16% attributed to the deviation of the US current account deficit from its "standard level" [2]. Current Account Deficit and Dollar Adjustment - The degree of dollar overvaluation is highly dependent on the assumptions regarding the current account "standard level." Currently, the US actual current account deficit is around 4% [3]. - If the current account deficit narrows to 2.6%, it could correspond to a 16.5% adjustment in the dollar; further reduction to 2% (close to the IMF 2023 standard) could lead to a 22% depreciation; and a reduction to 1% may require a 31% depreciation [3]. - The research emphasizes that due to the relatively closed nature of the US economy (with exports accounting for about 11% of GDP), a more significant exchange rate adjustment is necessary to address a similar-sized current account gap compared to more open economies [3]. Historical Context and Future Outlook - Historical examples show that currencies can rapidly adjust to fair value when significant macroeconomic changes occur, as seen with the British pound post-Brexit and the euro during gas price shocks [3]. - Goldman Sachs suggests that the overvaluation of the dollar has been a persistent phenomenon in recent years, but as the relative return advantage of the US diminishes and potential policy shifts occur, the market may witness a gradual adjustment of the dollar to a more reasonable valuation level [4].