Goldman Sachs: GBP is 'actionable' and soon set to become even more 'unfashionable’

Analysts at Goldman Sachs published its Macro Markets Strategy report this Wednesday, mainly focused on the GBP outlook in wake of a Hard-Brexit scenario.

Key Quotes:

“Prime Minister May's speech on Sunday (8 Jan), which simply restated her plan to trigger Article 50 by March and leave the EU within two years, has been sufficient to pull the currency down to the October lows.”

“Cable moved from 1.229 on Friday's close to 1.216 today.”

“This is a testament to how vulnerable the Pound is to the repricing of a 'hard Brexit' scenario, as well as, in our view, the extent to which periods of Sterling strength are the result of markets not discounting the new reality appropriately, a reality that we have fully incorporated into our outlook for the currency since the referendum in June and that we have reiterated several times since. “

“The FX market has not yet re-engaged with selling Sterling. Net shorts have been reduced and GBP has been one of the few G10 currencies not to depreciate substantially against the Dollar since the US elections.”

“But, 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.” 

“We expect the main economic consequences to be twofold: (i) an economic slowdown owing to elevated political uncertainty that reduces investment, employment and consumption as a result of higher prices, and (ii) an adjustment to the UK's external balance requiring a substantial decline in the current account deficit.”