Goldman Sachs GBP Forecast: "Rate Cut-Based Pound Sterling Underperformance In Coming Months" - Exchange Rates Org UK
The desk anticipates a period of underperformance for the British pound, driven by expectations of rate cuts from the Bank of England (BoE). Per the full note from Goldman Sachs, the GBP is likely to weaken as market sentiment shifts towards a more dovish outlook for UK monetary policy. This perspective is supported by recent economic data suggesting a slowdown in growth, which could prompt the BoE to lower rates sooner than previously anticipated. With no major economic events on the horizon, the pound's trajectory may be influenced primarily by shifts in market sentiment and positioning.
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.
How firms align with this view
Aligned with the desk view
Contrary positioning
Key takeaways
- 01Goldman Sachs expects GBP underperformance due to BoE rate cuts.
- 02Consensus target for GBP/USD is 1.28 by end-2026, with wide firm dispersion.
- 03Key risk is faster-than-expected rate cuts or political shocks.
Market implications
If Goldman's view proves correct, GBP/USD could break below 1.20, triggering stops and accelerating sell-offs. Higher volatility expected in GBP crosses, particularly EUR/GBP.
Risks to this view
Upside risks to GBP include a sudden shift in BoE rhetoric, stronger-than-expected UK growth, or external shocks weakening the USD. Downside risks include deeper recession, political crisis, or sharper rate cuts.
Sources & References
How we cover this story