|

Goldman Sachs on GBP: Risks tilted in direction of a sharper decline on Article 50 trigger

Robin Brooks and Michael Cahill at Goldman Sachs Macro Markets Strategy, noted in their latest report that investors should stay short on the GBP in wake of Article 50 trigger.

Key Quotes via eFX:

“We see the path for the British Pound as a function of two things. First, there is the question of where GBP/$ would trade in the event of a "hard Brexit." We have used several approaches to show that Sterling could fall between 20-40 percent relative to pre-referendum levels, with a low of 1.10 for GBP/$ quite possible.”

“Second, what probability should markets assign to "hard Brexit."

“In our minds, it has been this probability that has been moving the Pound around since June of last year. In particular, the political vacuum following the referendum meant that there was some probability that Article 50 might never be triggered.”

“In the presence of large speculative shorts, this kept the Pound supported after its initial referendum fall. But the Conservative party conference changed that, with Prime Minster May committing to trigger Article 50 by March.” 

“Our underlying conviction is that Sterling needs to weaken quite a bit more, given that the trade-weighted decline is only 13 percent so far, well shy of our 20-40 percent range.”

“Our 3-, 6- and 12-month forecasts for GBP/$ now stand at 1.20, 1.18 and 1.14, respectively, with risks tilted in the direction of a sharper, more front-loaded decline.”

Author

Dhwani Mehta

Dhwani Mehta

FXStreet

Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.

More from Dhwani Mehta
Share:

Editor's Picks

EUR/USD stays below 1.1850 after dismal German sentiment data

EUR/USD stays in negative territory below 1.1850 in the second half of the day on Tuesday. Renewed US Dollar strength, combined with a softer risk tone keep the pair undermined alongside downbeat German ZEW sentiment readings for February. 

GBP/USD falls toward 1.3550, pressured by weak UK jobs report

GBP/USD remains under bearish pressure and extends its decline below 1.3600 on Tuesday. The United Kingdom employment data suggested worsening labor market conditions, bolstering bets for a BoE interest rate cut next month and making it difficult for Pound Sterling to stay resilient against its peers.

Gold recovers modestly, stays deep in red below $4,950

Gold (XAU/USD) stages a rebound but remains deep in negative territory below $4,950 after touching its weakest level in over a week near $4,850 earlier in the day. Renewed US Dollar strength makes it difficult for XAU/USD to gather recovery momentum despite the risk-averse market atmosphere.

Canada CPI expected to show sticky inflation in January, still above BoC’s target

Economists see the headline CPI rising by 2.4% in a year to January, still above the BoC’s target and matching December’s increase. On a monthly basis, prices are expected to rise by 0.1%.

UK jobs market weakens, bolstering rate cut hopes

In the UK, the latest jobs report made for difficult reading. Nonetheless, this represents yet another reminder for the Bank of England that they need to act swiftly given the collapse in inflation expected over the coming months. 

Stellar mixed sentiment caps recovery

Stellar price remains under pressure, trading at $0.170 on Tuesday after failing to close above the key resistance on Sunday. The derivatives metric supports the bearish sentiment, with XLM’s short bets rising among traders and funding rates turning negative.