Goldman Sachs GBP Forecast: "Rate Cut-Based Pound Sterling Underperformance In Coming Months" - Exchange Rates Org UK

What the desk is arguing

Goldman Sachs argues that the Bank of England's rate-cutting cycle will lead to sustained Pound Sterling underperformance in the coming months. They expect the interest rate differential to widen against the GBP as other central banks maintain tighter policy.

The desk supports this view with evidence of slowing UK inflation and weak economic growth, which they believe will force the BoE to cut rates more aggressively than the market currently prices. They also highlight rising political uncertainty as a drag on GBP sentiment.

Implicitly, Goldman is rejecting the consensus view that GBP will strengthen on the back of improved fiscal outlook or terms-of-trade gains. They see rate cuts as the dominant driver that outweighs any positive structural factors.

Where it sits in our coverage

Our internal coverage maintains a moderate bullish bias on GBP/USD, with a consensus target of 1.28 for year-end 2026. This aligns with the view that rate differentials will matter, but we see the BoE cutting only in line with the Fed, keeping rate spreads stable. Our firm spread shows 50% of firms being bullish, 30% bearish, and 20% neutral on GBP.

Specific firms in our coverage include: - Barclays: target 1.25, tenor Dec-26, slightly bearish. - JPMorgan: target 1.30, tenor Dec-26, bullish. - Morgan Stanley: target 1.26, tenor Dec-26, neutral.

Our view diverges from Goldman's: we expect GBP to find support from improved risk appetite and UK fiscal stability, while Goldman sees rate cuts as the primary headwind.

How other firms see it

Several major banks align with Goldman's bearish view on GBP. Barclays shares a similar stance, citing slowing growth and potential for early rate cuts. Deutsche Bank also expects GBP to underperform, though their target of 1.22 is more aggressive.

Contrary views come from JPMorgan, which sees GBP strengthening to 1.30 as the global economy rebalances. HSBC also expects a modest GBP recovery, supported by resilient services exports. UBS is neutral, seeing limited scope for significant GBP moves.