Goldman Sachs(US:GS)2026-01-12 02:27Summary of the 2026 Global FX Outlook Industry Overview - The report focuses on the foreign exchange (FX) market, particularly the performance and outlook of various currencies against the US Dollar. Key Points and Arguments US Dollar Outlook - The central view is that less US outperformance compared to other economies will lead to a weaker Dollar over time, with expectations of a shallower descent in 2026 due to more pro-cyclical currencies [2][4][20] - The Dollar is currently overvalued by approximately 15%, and while a small depreciation is expected, larger moves could occur if concerns about the US labor market arise, potentially leading to deeper Federal Reserve rate cuts [20][22] - The Dollar's performance is expected to be influenced by global growth dynamics, with a sturdy global growth backdrop likely weighing on the Dollar due to its negative correlation with risk sentiment [4][11] Currency Performance Expectations - Euro (EUR): The Euro is expected to appreciate further, but not to the same degree as in 2025, as it enters 2026 closer to fair value against the Dollar. Increased fiscal spending in the Euro area is anticipated to support its performance [34][36] - Japanese Yen (JPY): A modest strengthening of the Yen is expected, with potential for higher volatility. The outlook is influenced by fiscal policy and global macroeconomic conditions [47][49] - British Pound (GBP): The Pound is projected to continue underperforming relative to its European peers due to fiscal constraints and a challenging domestic economic outlook [52][60] - Chinese Yuan (CNY): The Yuan is considered undervalued, with expectations of gradual appreciation driven by strong export growth and competitiveness in global trade [61][65] Risks and Considerations - The report highlights several risks, including potential shifts in US labor market conditions, geopolitical tensions, and the impact of fiscal policies on currency valuations [20][46][49] - The potential for a "China Shock 2.0" poses structural risks to the Euro area economies, which are vulnerable to changes in Chinese economic conditions [46] - The report emphasizes the importance of monitoring cross-border M&A flows, as they significantly impact currency markets and can lead to substantial directional FX movements [69][75] Long-term Currency Forecasts - Long-term forecasts for 2035 include EUR/USD at 1.21, USD/JPY at 100, GBP/USD at 1.24, and USD/CNY at 5.17, reflecting mean-reverting properties of real exchange rates [28][29] Additional Important Content - The report discusses the implications of macroeconomic conditions on currency performance, emphasizing the need for investors to consider these factors in their investment decisions [6][22] - It also notes that while the Dollar may face depreciation, its dominance in international markets is not expected to diminish significantly in the near term [22][24]