Goldman Sachs is maintaining its bearish outlook on the British pound despite recent positive momentum in UK economic data.
The investment bank notes that while global risk sentiment, regional macro themes, and currency valuations all factor into their prediction for Sterling underperformance this year, domestic developments have dominated recent GBP price movements.
Goldman Sachs points out that despite resilience in UK growth and activity data, these indicators have still underperformed compared to incoming Euro area data.
The bank also highlights that forward-looking aspects of European data suggest this trend may continue.
The firm believes that continued softening in UK inflation and labor market data will be more important than growth figures in driving Bank of England easing in upcoming meetings. These factors are central to Goldman’s “catching down” outlook for UK macroeconomics this year.
Political risk has recently contributed to Sterling weakness, but Goldman Sachs expects this factor to have a smaller and more episodic impact than broader macroeconomic trends.
The bank notes that the net impact of UK political premium fluctuations on EUR/GBP has been limited over the past week.
Goldman Sachs maintains its long tactical EUR/GBP trade recommendation with a target of 0.8740, while acknowledging that already-short Sterling positioning and the importance of next week’s CPI and labor market data present key tactical risks to their outlook.
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