Goldman Sachs analysts suggest the British Pound can stabilize despite recent declines, although risks remain:
- GBP is "down but not out"
The background to GS' views are the recent sharp weakness in the pound:
- investor concerns about UK debt market dynamics, with bond sell-offs driving yields higher and raising government borrowing costs
- broader concerns about the UK's growth fundamentals and ineffective policies to boost economic growth and tax revenue
Goldman Sachs note three reasons to expect GBP stabilisation and recovery:
- recent GBP weakness partly reflects a broader risk-off sentiment in FX markets, which may reverse as risk appetite recovers
- fiscal risks in UK Gilts could compress, reducing pressure on the pound
- upcoming hard data on increased government spending and investment might surprise positively, bolstering sentiment
Risk to the view include:
- a hawkish Federal Reserve, combined with strong U.S. inflation and labor data, creates a challenging environment for GBP/USD ... difficult for the Pound with higher global yields, as well as to Dollar strength more directly
- potential "escalation in the loop of sell-offs in UK assets and a more strenuous fiscal position"
GS prefer GBP against EUR:
- the Euro may face challenges from potential tariffs under Trump
Cable update:
