Goldman Sachs has changed its outlook on the US dollar, predicting persistent weakness throughout the year. This has led to notable revisions in its EUR/USD forecasts, indicating a wider shift within foreign exchange markets.
The bank’s base case now anticipates a sustained decline in USD value, moving previously identified risks into the central forecast. The strength of the USD, once supported by robust US growth and capital inflows, is diminishing, leading to valuation pressures.
New Eur Usd Projections
The updated EUR/USD projections include 1.12 in three months, 1.15 in six months, and 1.20 in twelve months. Previous forecasts for the pair were 1.07, 1.05, and 1.02, respectively.
Goldman Sachs now firmly predicts continued dollar depreciation driven by weakening US fundamentals. The euro is expected to benefit significantly from this trend, with projections suggesting a rise towards 1.20 by the end of the year.
We’re now seeing a notable pivot in expectations around the trajectory of the dollar, and by implication, much of the broader FX complex. The shift we’ve observed, particularly through the lens of recent forecasts, suggests that downside momentum in the greenback is no longer viewed as a peripheral possibility but rather as the path most likely. This subtle yet important repositioning marks a change from prior assumptions which leaned on stronger US indicators to bifurcate risk.
Structural Headwinds On Us Side
It appears that Smith and his team now view structural headwinds on the US side—softer macro data, reduced yield support, and a moderation in capital inflows—as enough not only to temper dollar strength but to reverse it decisively. What was once a defensive play on growth outperformance and interest rate support is now weighed down by narrowing differentials and other macro frictions.
Recalibrating targets from the 1.07 range to as high as 1.20 within the next twelve months suggests more than just a short-term correction. The euro, long subdued due to external fragilities and policy caution, is now finding room to recover. What had been regarded as a defensive currency profile in USD terms is softening—and the data is beginning to reflect that shift as well.
Looking ahead, an increasingly symmetrical volatility profile for G10 FX suggests that a rebalancing of positioning may already be underway. From our vantage point, the forward curve alignment implies a less aggressive dollar bid, and that sets up potential carry alternatives for those still overweight USD in medium-dated derivative structures.
As real rates converge and pressure mounts on short-end curves, those of us trading directionally may find more stability in diversifying exposure across previously underperforming crosses. The adjustment in spot and forward pricing across EUR/USD potentially creates room for higher-delta participation in euro calls, particularly in the three- to six-month window where short-covering might still be ongoing. Now that the repricing is backed by base-case expectations instead of tail risk, implied volatility premiums may continue to fall, making vanilla structures more attractive relative to skew-heavy constructs.
For traders more focused on rate sensitivity, consider how US data surprises are beginning to temper. If these persist, the flattening risk becomes less one-sided, nudging central bank differentials closer in line with forecasts. That means existing strategies based on USD momentum should be reassessed for duration and convexity. In the event of any renewed deterioration in US-specific data, particularly consumption or labour-related metrics, that could pull forward softening expectations in the short-term rates market and further undermine dollar buying.
Some may be tempted to lean into the euro as a funding currency again, but if the rate path remains where it’s expected, this could have diminishing return. Instead, skewing tactically towards expressions that benefit from modest EUR strength without overcommitting to long-dated gamma may prove more efficient.
There’s also a subtle rebalancing taking place in options flow, especially across three- and six-month tenors. Shifting appetite away from USD upside protection is already visible through reduced topside open interest. Responding to these moves requires examining premium decay, particularly for those holding calendar spreads or ratio structures timed around central bank catalysts.
By recalibrating focus towards relative value and being more selective with delta and volatility exposure, we believe that current positioning should adjust to reflect a trend that is no longer tentative but widely accepted as the base path. The key now lies in parsing how fast and how far traders believe this unfolding decline in the dollar might run—and preparing accordingly.
