Goldman Sachs Lifts Pound Sterling Forecasts Against the Euro and Dollar

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Foreign exchange analysts at Goldman Sachs have raised their forecasts for Pound Sterling on account of ongoing economic resilience and a reasessment of the Dollar's outlook.

"At the current juncture, support for Sterling is coming both from its risk beta as well as solid growth momentum and a patient Bank of England," says Kamakshya Trivedi at Goldman Sachs in London.

The Bank of England last week kept interest rates unchanged by a decisive 8-1 vote and confirmed it appropriate to only cut rates at a gradual pace.

The message has this week been repeated by Bank of England Governor Andrew Bailey during a visit to Kent and Monetary Policy Committee member Megan Greene, in a speech delivered midweek.

"Our stance of policy isn't as restrictive as we had thought," said Greene. "Given this risk, I believe it is appropriate to take a gradual approach to removing restrictiveness."

The Pound to Euro exchange rate this week rallied to above 1.20 amidst these developments and the Pound to Dollar conversion reached 1.34.

Goldman Sachs says additional support comes from the buoyant global stock market backdrop, which traditionally supports both GBP/USD and GBP/EUR.

The Federal Reserve boosted global investor sentiment last week by cutting interest rates by 50 basis points, lowering the odds of a U.S. recession.

Trivedi says there was a risk the Fed would be too timid and underdeliver, which could have potentially boosted the Dollar.

"Markets have priced out US recession risk, benefiting risky assets and pro-cyclical currencies like Sterling. Assuming US growth continues to outperform and the Fed still eases quickly, this pattern should support further upside in GBP," says Trivdedi.

Investment bank consensus forecasts update: The end-2024 and 2025 guide from Corpay has been released. It shows a sizeable uplift was made to the consensus forecasts for GBP/EUR. Compiled by Corpay, it is available as a free discretionary download here.

"Long GBP positioning looks stretched on some metrics, but we do not see that as enough of a headwind when the broader pro-cyclical backdrop is driving gains and is likely to remain supportive," he adds.

On Wednesday Corpay released its year-end guide to what the world's big investment banks are predicting. It presents the median and mean forecasts of all these institutions, which is a useful anchor for those looking to make international payments in the coming months.

Goldman Sachs is at the 'bullish' end of the spectrum, lifting its year-end GBP/USD forecast to 1.34 from 1.27. The bank sees GBP/EUR ending 2024 at 1.22.