Goldman Sachs Pound To Euro And Dollar Forecast: Sterling Outlook Skewed To The Downside - Exchange Rates Org UK
At a Glance
The desk views the outlook for the British pound as increasingly bearish against both the euro and the dollar, reflecting a consensus that is skewed to the downside. Per the full note from Goldman Sachs, the current economic indicators and market sentiment suggest a weakening of sterling, particularly as the Bank of England's (BoE) policy decisions come under scrutiny. The desk notes that the recent inflation data and growth forecasts have not provided sufficient support for a bullish stance on the pound. As such, we anticipate further downward pressure on GBP/USD and GBP/EUR in the near term.
Key Takeaways
- 01Goldman Sachs forecasts GBP downside vs both EUR and USD.
- 02The bank sees macro headwinds and lack of catalysts for a sterling rally.
- 03Our internal consensus is more neutral; Goldman's view is at the bearish end of the spectrum.
Full Analysis
What the desk is arguing
Goldman Sachs argues that the outlook for sterling is skewed to the downside, with little room for a near-term rebound. The bank's forecast suggests that the pound will struggle against both the euro and the dollar as macroeconomic headwinds persist.
Supporting this view, Goldman points to the UK's deteriorating growth outlook and sticky inflation, which limits the Bank of England's ability to provide hawkish surprises. Additionally, the bank sees fading momentum from earlier positive Brexit-related narratives.
The desk implicitly rejects the optimistic view that sterling is undervalued and due for a mean-reversion rally. Instead, it argues that the current environment of high interest rates and global risk aversion will continue to weigh on the pound.
Where it sits in our coverage
Our internal consensus has been more neutral on sterling, with a EUR/GBP target near 0.87 and GBP/USD at 1.26. Goldman's downside skew is a contrarian call within our coverage, as most banks see a more balanced outlook.
Among firms with explicit targets, Barclays forecasts GBP/USD at 1.30 by year-end, JPMorgan at 1.25, and Bank of America at 1.22. Goldman's bearish stance places it below the pack, aligning more closely with Morgan Stanley at 1.20.
How other firms see it
Barclays disagrees, seeing a recovery in GBP as UK inflation cools faster than the US, allowing the pound to appreciate. JPMorgan is also more constructive, arguing that the worst of the UK macro shock is behind us.
Contrarily, Morgan Stanley aligns with Goldman's negative view, citing similar concerns over UK growth and BoE policy. Bank of America warns of downside risks but doesn't go as far as Goldman in skew.
Market Implications
Sterling faces headwinds from weak growth and sticky inflation, potentially limiting upside. EUR/GBP may test the 0.90 level if the bearish view materializes, while GBP/USD could slip below 1.20.
From the original
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