Pound Sterling to soon become "Even More Unfashionable" say Goldman Sachs Forecasters

The 16% decline in the GBP/USD exchange rate witnessed in 2016 will unlikely be undone in 2017 according to analysts at Goldman Sachs.

If anything, markets may be flattering the UK currency we are told.

The Pound is under pressure against its major competitors in early 2017 with the late 2016 recovery bounce finally failing, and reversing.

In a new research note to clients, seen by Pound Sterling Live, Goldman Sachs say the foreign exchange market has not actually yet re-engaged with selling Sterling.

Net shorts (bets against the Pound) have been reduced and GBP has been one of the few G10 currencies not to depreciate substantially against the Dollar since the US elections.

“In our view, Sterling is ‘actionable’ and soon set to become even more ‘unfashionable’, despite the recent move lower, as coming political events will only increase uncertainty on the future relationship between the UK and the EU,” says analyst Silvia Ardagna at Goldman Sachs in London.

Any strength in Pound Sterling is explained as being a reflection of the markets getting it wrong on the currency - Goldman Sachs believe the markets are “not discounting the new reality appropriately.”

Time to Bet Against Sterling

Goldman Sachs have acknowledged they have held a more pessimistic view than the market on the probability of the UK triggering Article 50, on losing participation in the Single Market and, more generally, on the fall-out from Brexit.

From a strategic point-of-view they believe the timing is now right to built exposure to a weaker Sterling again. 

As such, their Top Trade recommendation to be long USD against an equally weighted basket of EUR and GBP for a potential return of 10%.

"We also take a look at Q3 balance-of payments data, published at the end of December. These are the first available data on international flows since the referendum and they give us a sense of how international investors see the outlook for Sterling and UK assets," says Ardagna.

Goldman Sachs' viewpoint stands in marked contrast to those offered by the likes of Lloyds Bank who see a gradual appreciation in the Pound exchange rate through 2017. Another institution seeing gains are Nordea Markets who give their views here.

Goldman Sachs now forecast the Pound to Dollar exchange rate at 1.14 in 12 months, revised down from 1.25 in November.