GBP/USD: Better, but not good – Goldman Sachs

Analysts at Goldman Sachs, in their recent note, revised up their forecasts for the GBP/USD pair but still expect some underperformance going forward.

Key quotes

"After serving as the center of the financial market storm for a few weeks, with fiscal and monetary policy out of step with each other and the macro backdrop, now they appear to be moving in a more cohesive and coherent direction."

"Markets have responded to this change in strategy by taking down the risk premium on UK assets significantly. We think this is appropriate, but also think it should be emphasized that the UK economy remains in a difficult position."

"From current levels,(GBP) risks still appear to be skewed to the downside given how much is priced into the BoE, and it might be 'easier said than done' when it comes to removing fiscal support during a difficult economic downturn."

"Taking these things together, we are revising our Sterling forecasts in a more positive direction, but still expect some further GBP underperformance ahead. We now forecast EUR/GBP to trade at GBP0.88, GBP0.87, and GBP0.86 in 3, 6, and 12 months (from GBP0.92, GBP0.90, and GBP0.88 previously). This  implies GBP/USD at $1.10, $1.11, and $1.22 (vs $1.05, $1.08, and $1.19 previously)."