Global FX Trader The Credit Connection

Economics Research 9 October 2026 | 9:15PM BST

Our thoughts on USD, BRL, EUR, JPY & INR Kamakshya Trivedi | n USD: High and wide. The Dollar has been helped to new highs by a combination Goldman Sachs International of higher oil prices, stronger relative equity market performance, wider front-end Michael Cahill rate differentials, and wider sovereign credit spreads in Europe. We have written | Goldman Sachs International that FX returns this year have been relatively contained because FX tends to respond when recession risks are on the rise or policy expectations diverge. The Danny Suwanapruti | prior six months featured the opposite—surprisingly resilient growth and policy Goldman Sachs (Singapore) Pte rate pricing moving higher around the world—which tends to favor larger moves Teresa Alves | in rates than FX. We believe that the Dollar can break to the strong side of its Goldman Sachs International incredibly narrow range if tighter financial conditions weigh on other parts of the Karen Reichgott Fishman world, particularly Europe, before the factors boosting US activity (including | AI-related investment) begin to fade. Price action over the last month has had Goldman Sachs & Co. LLC

this flavor, so it should not be a surprise that the Dollar has strengthened in this Stuart Jenkins | environment. Most notably, rate differentials have moved in the Dollar’s favor Goldman Sachs International over the last few weeks even as the Fed has guided towards a slower pace of rate Victor Engel hikes than the market was pricing. Front-end US rates have rallied—it is just that | expectations abroad have moved by more. This mostly reflects shifting Goldman Sachs International

expectations in Europe after signs of contagion outside of France, which matters Lexi Kanter | because credit tightening is particularly negative for a currency when it replaces Goldman Sachs & Co. LLC rate hikes, but rate differentials have also widened against higher-beta G10 currencies like Canada. As we wrote last week, we think these moves are supportive of our view that the Dollar can rise on signs of more durable US outperformance, even if the Fed follows a much lower trajectory than what is priced. However, while those risks have clearly risen, we still take a more benign view given that the recent move was first catalyzed by stronger growth outturns and carry unwinds—hardly the typical setup for sovereign credit concerns to grow—and currency policy in Asia (including strong CNY fixes after the holiday) should continue to weigh on key parts of the Dollar complex. That said, we now see three risks that make a quick reversal unlikely. First, while spread widening may be approaching limits, a shift in policies in Europe is likely to be more gradual. Second, our economists expect another firm US inflation print next week, which would likely keep Fed pricing more stable. Third, ongoing concerns around another escalation in the Middle East will likely keep energy prices elevated, but even some relief would likely weigh more on ECB than Fed expectations under these circumstances.

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Goldman Sachs Global FX Trader

n BRL: Getting real. The Real appreciated by more than 4% on Monday following the first round of Brazil’s general election. Senator Flávio Bolsonaro outperformed expectations and is now widely expected to win the second round (on October 25), with polls after the first round pointing in the same direction. Importantly, conservative and right-of-centre candidates performed significantly better than expected in the congressional and gubernatorial races. This points to favourable governability conditions if Flávio Bolsonaro becomes President, particularly when compared with the more divided congress under Jair Bolsonaro. We think the sharp FX market reaction on Monday is consistent with both expectations shifting towards more market-friendly policy and prior election cycles when first-round results provided meaningful information to market participants. Using the 2018…