Core View - The central conclusion of Goldman Sachs' 2026 Global FX Outlook is that the US dollar is expected to depreciate moderately, with a cyclical pattern in the global currency market leading to significant differentiation in currency performance [1][2]. Dollar Outlook - The report maintains the view that the relative economic advantage of the US is diminishing, which will contribute to a long-term weakening of the dollar. After a significant drop in 2025, the dollar is anticipated to stabilize due to unexpected resilience in the US economy and a slowdown in policy adjustments [2][6]. - In 2026, the dollar will face opposing forces: robust global economic growth and more balanced asset returns will exert downward pressure, while the dollar remains overvalued by approximately 15%, supported by higher-than-consensus US growth expectations [2][8]. - The expected depreciation of the dollar in 2026 will be less severe than in 2025, with pro-cyclical currencies leading the downward trend [2][10]. Major Currency Outlook - **G10 Currencies**: The euro is projected to approach fair value after leading in 2025, with expectations of EUR/USD moving towards 1.25 due to increased fiscal spending in Germany and a weaker dollar [5][34]. The Japanese yen is expected to strengthen moderately, supported by narrowing interest rate differentials, but with increased volatility [42]. The British pound is likely to continue underperforming relative to European peers due to fiscal tightening and a weak economic outlook [49][55]. - **Emerging Market Currencies**: Pro-cyclical and undervalued currencies, as well as high-yield currencies from emerging markets, are identified as key investment opportunities for 2026. The South Korean won, New Taiwan dollar, and Malaysian ringgit are expected to outperform high-yield currencies due to supportive economic conditions in China [3][5]. - **Latin America and Africa**: Currencies like the Brazilian real and South African rand are expected to gain attention due to their cyclical attributes and interest rate buffers, while the Turkish lira and Colombian peso may experience increased volatility due to political uncertainties [5][3]. Market Opportunities and Risks - Investment opportunities in 2026 will focus on pro-cyclical currencies, undervalued currencies, and high-yield emerging market currencies, with attention to cross-border M&A-related currency fluctuations [3][67]. - The report highlights that low implied volatility in the forex market may rise, providing cost advantages for directional trading [3][67]. However, risks include unexpected US economic performance, geopolitical conflicts, and policy adjustments that could lead to currency fluctuations [3][5].