Goldman Sachs: The US dollar is overvalued by about 14%-15%.
Goldman Sachs said that the US dollar is overvalued by about 14-15% based on the real trade-weighted basis. It is expected that the Federal Reserve will cut interest rates five times next year, leading to a decline of around 3% in the US dollar index.
As the expectation of a Fed rate cut continues to rise, Goldman Sachs has become increasingly pessimistic about the US dollar, stating that it is overvalued by about 15%.
In their latest report, Goldman Sachs' strategist team led by Kamakshya Trivedi wrote that although the US dollar may decline this year, "the US dollar is still overvalued by about 14-15% on a trade-weighted basis, which is about 5-6 percentage points lower than the peak overvaluation in the autumn of 2022."
They predict that the US dollar will depreciate by 2-3% in the next 12 months. As of the time of writing, the US dollar index is at 102.35, down nearly 5% from its peak in October.
Goldman Sachs stated:
Going into 2024, the US dollar will still maintain relative strength. Considering the top-down global macro backdrop, including significant anti-inflation and strong growth, non-recessionary rate cuts by the Fed, and active stock market risk sentiment, we expect the strength of the US dollar to continue to weaken, but at a relatively slow pace.
After the Fed released its strongest rate cut signal so far, Goldman Sachs joined the chorus of "bearish on the US dollar."
Goldman Sachs analyst Michael Cahill pointed out in a report last Friday that after the Fed signaled the rapid implementation of "non-recessionary rate cuts," Goldman Sachs made comprehensive adjustments to its exchange rate forecasts, expecting the Fed to cut interest rates five times next year, leading to a decline of about 3% in the US dollar index.
Societe Generale is even more pessimistic about the US dollar. Its Chief Global FX Strategist, Kit Juckes, predicts that the US dollar index will decline by 5% to 97 in 2024.
According to data from the Commodity Futures Trading Commission, hedge funds and other large speculators have turned net short on the US dollar for the first time since September before last week's monetary policy meeting.