Goldman Sachs abandons weak-dollar call, citing AI boom

Goldman Sachs The Goldman Sachs Group, Inc. ↗ 2.18% has raised its dollar forecasts and abandoned its earlier call for broad greenback weakness, arguing that forces underpinning the currency look increasingly durable rather than temporary.

The bank revised its USD/JPY path to 162, 163, and 165 at the three-, six-, and 12-month horizons, up from prior targets of 160, 158, and 155. It also lowered its EUR/USD forecast to 1.14, 1.12, and 1.12, down from 1.14, 1.18, and 1.20 previously, according to the note published this week.investing

Twin Economic Shocks

Goldman attributed the shift to what it called "twin economic shocks" — an artificial intelligence investment boom and an energy supply bust — that have combined to raise the relative appeal of U.S. assets. The AI boom has pushed up capital expenditure and inflationary pressures, and the bank noted that Federal Reserve Chair Warsh highlighted at the Sintra conference this week that this dynamic is unique to the United States among developed-market economies.investing

Those forces have shifted rate differentials, particularly the market-implied neutral rate, in the dollar's favor, Goldman said, and have quieted calls to diversify away from U.S. assets that had amplified dollar depreciation a year ago.investing

A Divided Dollar

The bank's revised outlook frames the dollar story not as a broad surge but as increasingly divided. The currency has risen against low-yielding counterparts like the yen and euro while falling against those offering higher carry. Goldman also revised its forecasts stronger for emerging-market high-yielders including the Indian rupee and Colombian peso.thedarksideoftheboom.substack+1

The shift represents a notable reversal from Goldman's stance earlier in the year, when it had expected continued dollar weakness driven by diminished demand for U.S. assets. The scale of the AI capex cycle — with the five largest U.S. hyperscalers committed to roughly $600–700 billion of spending in 2026 — has reinforced international demand for dollar-denominated assets.poundsterlinglive+2

Risks and Context

Goldman outlined risks in both directions. A re-emergence of the credibility concerns that weighed on the dollar last year, or more balanced economic data, could undermine the currency. Conversely, confirmation that more restrictive monetary policy is required could produce outsized moves if policy diverges further than markets expect.investing

The revision aligns broadly with peers. Bank of America similarly cut its EUR/USD forecast to 1.12 by end of the third quarter, while MUFG noted USD/JPY rose above 162 in June on growing expectations for Fed rate hikes. Goldman said it had first flagged tactical dollar support against low-yielders in mid-March and now believes "these forces look likely to linger for longer".finance.yahoo+3