Goldman Sachs: British Pound to Weaken on Fiscal Policy
June 28, 2010 at 10:21 UTC || By Forex Playmaker
The recent run in the British pound will begin to lose steam, as budget cuts will slow economic growth, according to Goldman Sachs.
Analysts at Goldman argue that further pound-strength may lack a fundamental basis. “At some stage the impact of fiscal tightening on growth will become visible and at that stage, weaker demand could translate into weaker sterling again. But just how much is tough to say.”
The GBP/USD has been especially strong in recent trading, despite general weakness in the broader markets, which the pair normally tracks. As noted in last week’s playbook, the GBP/USD has likely found its top around the 1.50 handle:
In the Forex space, the British pound is growing increasingly attractive as a short prospect…. Overblown concerns of inflation in the UK have led investors to speculate on a potential rate hike out of the Bank of England in the near-term, which is about as likely as Greece making good on its long-term debt obligations.
The 1.50 handle (or slightly above) for the GBP/USD will likely prove a top for the currency pair in the medium-term. Once reached, investors can expect further declines toward the January 2009 lows of 1.35.
That is to say that the Goldman analysts are absolutely correct in their outlook for the British pound.
