Key Points:
The dollar remains nearly two standard deviations above its long-term real average since 1973.
Foreign Holdings Pose Structural Risk:
About half of these holdings are unhedged equity exposures, meaning a shift in sentiment could amplify FX moves.
Even a modest reduction in US portfolio exposure by international investors could drive material dollar depreciation.
Conclusion:
Goldman Sachs believes the dollar has considerably further to fall, with historical precedent, current valuation metrics, and global capital flow dynamics all pointing toward a multi-quarter USD downtrend. Portfolio diversification and declining US asset appeal may fuel the adjustment.
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