Synopsis:

Goldman Sachs maintains a perspective that while the US dollar (USD) is expected to weaken over time, this process will be gradual and uneven. The bank anticipates that the US economy will continue to outperform relative to its peers, contributing to a complex landscape for USD valuation.

Key Points:

1. US Economic Outperformance:

   • Goldman Sachs expects the US economy to continue performing better than its counterparts in China and the Euro area. This relative strength supports the USD's position in the near term.

2. Underperformance of China and Euro Area:

   • The forecast highlights anticipated struggles in both the Chinese and Eurozone economies, which are expected to weigh on their currencies and create a favorable environment for the USD.

3. Attractive US Real Returns:

   • US real returns are projected to remain appealing compared to other countries and relative to historical cycles. This factor plays a crucial role in supporting the USD amid a backdrop of high valuation.

4. Gradual Weakening of the Dollar:

   • Despite the expected economic conditions, Goldman Sachs emphasizes that any weakening of the USD will be a slow and inconsistent process. This outlook reflects their view that while the dollar may weaken, significant erosion of its value is not anticipated to occur rapidly.

5. High Valuation Considerations:

   • The bank notes that the USD's high valuation will not be easily diminished. While adjustments are expected, they will happen incrementally rather than through abrupt shifts.

Conclusion:

Goldman Sachs outlines a nuanced outlook for the USD, forecasting a gradual weakening process influenced by the relative performance of the US economy against China and the Eurozone. While the dollar's high valuation remains a factor, the bank anticipates ongoing strength in US economic indicators will support the currency's position, resulting in a complex but incremental path for USD depreciation.