Goldman Sachs Abandons Broad Dollar Weakness Call: New Forecasts and the Key Drivers Behind the Shift

New Currency Forecasts

Goldman Sachs's latest known forecasts reflect a shallower and more delayed dollar descent than previously projected:

The January 2026 report titled "Different Dollar Downside" encapsulates the shift: the dollar fell sharply in 2025 and remains ~15% overvalued, but the descent in 2026 is expected to be shallower than previously forecast .

Key Drivers Behind the Revision

1. Resilient U.S. labor market — a stronger-than-expected jobs picture pushed Goldman to scrap its 2026 Fed cut call entirely .
2. Sticky inflation — rising prices and inflation expectations forced the Fed to hold steady, with Goldman's asset management unit even projecting ECB rate hikes .
3. Stronger U.S. growth — Goldman now expects U.S. GDP growth of 2.6% in 2026 vs. 2.0% consensus, supported by tax cuts and reduced tariff drag .
4. Fading recession fears — the "non-recessionary" environment means Fed cuts are delayed, removing a key driver of earlier bearish dollar bets .
5. Global growth divergence — the rest of the world is performing better than expected, but the U.S. is still outperforming, creating a more balanced rather than one-sided dollar-negative picture .

The Divided Nature of the Dollar Outlook

The outlook is sharply divided across time horizons and between desks at Goldman Sachs:

• Short-term (H1 2026): Goldman described the dollar as "volatile" in H1 and "rangebound" in H2 . Some internal notes suggested a hawkish Fed pivot could strengthen the USD in the near term as a "credibility premium" .
• Medium-term (2026–2027): Still bearish, but the descent is "shallower" and "different" — not the broad rout previously predicted .
• Long-term structural: Goldman still believes the dollar is ~15% overvalued and that demand for U.S. assets is diminishing . The multiyear trend of dollar strength has broken .
• Internal divide: The bank's FX strategy team (Trivedi, Cahill) maintains a long-term bearish structural view , while its economists (Hatzius, Mericle) revised the Fed outlook sharply higher, directly constraining the bearish FX thesis . Goldman Asset Management's June 2026 Market Pulse even flagged potential USD strength from the hawkish FOMC pivot .

Associated Risks

Several risk factors could disrupt this outlook:

• Tariff escalation risk: Renewed trade tensions could reignite recession fears and volatility, but could also be dollar-negative if they hurt U.S. growth disproportionately .
• Energy / supply shock risk: Middle East disruptions remain a key wild card; a significant supply shock could upend the inflation and rate outlook .
• Fed miscommunication risk: If the Fed pivots dovish sooner than Goldman now expects, the dollar could resume its decline faster than forecast.
• "Risk currency" behavior: Goldman has warned that the dollar could continue to trade like a risky currency, breaking its traditional safe-haven correlation with equities .
• Global growth divergence: Stronger rest-of-world growth could accelerate dollar weakness despite the delayed Fed cuts.

Broader Market Context

The DXY dollar index ended 2025 down ~9%, reflecting the tariff shock and fading exceptionalism narrative . Wall Street consensus in late 2025 was for the dollar to resume its slide in 2026 as the Fed continued easing — a view that has been partially upended by the labor market's strength . Deutsche Bank and other major banks shared similar forecasts of a weaker 2026 dollar, all of which face similar upside risk now . The broader FX environment has shifted from a dominant USD trend in 2024–2025 to a more fragmented, relative-value-driven market, where activity data and central bank divergence play a larger role .