Global FX Trader Carry, With Energy

Economics Research 24 July 2026 | 9:00PM BST

Our thoughts on USD, EUR, GBP, ZAR, JPY, HUF, AUD/NZD, & IDR Kamakshya Trivedi | n USD: Is this thing on? Despite a lot of macro news, actual Dollar moves have Goldman Sachs International been quite constrained in recent weeks. When we assess relative performance Michael Cahill beneath the surface over the last few weeks, a number of familiar themes are still | Goldman Sachs International clearly driving returns—high- vs low-yielding carry most of all, together with energy ToT coming back to the forefront. On the latter, we think the Dollar’s Danny Suwanapruti | more muted performance is consistent with a stronger starting point and less Goldman Sachs (Singapore) Pte safe-haven demand than in March. However, high energy prices should also Teresa Alves | provide some cushion for the Dollar against the on-hold FOMC decision we Goldman Sachs International expect next week. If oil prices stay elevated, we do not expect much change in Karen Reichgott Fishman cumulative hike pricing or pass-through to the Dollar on the decision, despite | markets pricing a meaningful chance of a rate hike next week. Over the more Goldman Sachs & Co. LLC

medium term, we see our economists’ call for the FOMC to remain on hold Stuart Jenkins | through the end of the year as a modest but manageable headwind for the Goldman Sachs International currency against its G10 peers. Factors like carry, ToT and (relatedly) relative Victor Engel return prospects remain key to our baseline outlook of divided Dollar | performance in the months ahead. That said, we continue to see routes through Goldman Sachs International

which things such as the re-escalation of the conflict, the debate around AI Lexi Kanter | capex spending, and the move towards more expansionary fiscal policy in places Goldman Sachs & Co. LLC such as the UK and Japan could lead to more divergent and disruptive FX moves. Low levels of implied volatility seem justified by realized price action, but also amplify the value of FX for hedging against these scenarios. n EUR: Stuck in the shadow. In many respects, the Euro continues to trade as the mirror image of the broad Dollar. The correlation between the two has remained exceptionally tight in recent months, more so than for any other G10 Dollar pair (Exhibit 1). In part, we think this is reflective of the limited idiosyncratic vol stemming from domestic Euro-area data and policy. The German fiscal rollout has continued at a firm pace, but the implications for area-wide growth have been outweighed by the impact of the global energy shock. And ECB policy has generally continued to be well-telegraphed, including with a hold at this week’s meeting, and with a September hike being widely expected and priced. While it is true that hike pricing has now run more clearly ahead of our economists’ baseline for a final additional hike in September, this dynamic is common across almost all G10 markets, which we think raises the hurdle for ECB-driven rate differential

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Goldman Sachs Global FX Trader

shifts to materially drive the Euro’s performance ahead. From a global perspective meanwhile, the Euro remains on the wrong side of both the terms of trade shock (particularly with European natural gas prices now showing greater participation than in March/April), and of the high-yielder versus low-yielder divide. We see these two global themes as central to the FX market outlook currently, and should help keep EUR/USD under pressure in the months ahead in our view, and support the case for Euro-funded carry positions.

Exhibit 1: The Euro’s correlation to the broad Dollar has been tighter than for any other G10 Dollar pair

Correlation Correlation 1.0 Rolling 6-month Correlation of G10 Dollar Pairs to the GS USD Trade-Weighted Index 1.0 EUR/USD Corrleation with GS USD TWI G10/USD Correlation with GS USD TWI (Range Across Rest of G10 Pairs) 0.9 0.9

Source: Goldman Sachs FICC and Equities, Goldman Sachs Global Investment Research

n GBP…