Investors are showing increasing confidence in the British pound, with data from the Commodity Futures Trading Commission revealing a shift to net bullish sterling positions for the first time since September during the week ending December 5. Goldman Sachs Group Inc. has joined this positive outlook by revising its forecast upward, anticipating the currency to strengthen to $1.30 in the next six months, up from the previous expectation of $1.20.
As of Monday, the pound remained steady at around $1.2545 in Asia. Throughout the year, it has demonstrated resilience against the dollar, recording a 3.8% gain, making it the second-best-performing currency among the Group of Ten (G10) after the Swiss franc.
Goldman Sachs strategists, including Kamakshya Trivedi, highlighted key factors contributing to the optimistic sentiment. Firstly, markets are adjusting to a soft landing scenario, incorporating the possibility of rate relief, which bodes well for cyclical and rates-sensitive currencies like the sterling. Secondly, the rapid shift to rate cuts in other regions reduces the Bank of England’s dovish outlier status.
Swaps markets are aligning with Goldman’s perspective, with investors pricing approximately 110 basis points of easing by the Federal Reserve and 134 basis points of cuts by the European Central Bank in the coming year. In contrast, swaps traders are factoring in around 85 basis points of easing by the Bank of England.
Despite the positive outlook, some investors still see room for further appreciation of the pound. Fidelity International predicts a strengthening to the $1.40 level in the upcoming year. Although asset managers maintain a short position on the currency, their negative bets have become less pronounced.
Goldman Sachs strategists expressed confidence in the pound’s potential, stating, “The recent market trend is potentially quite supportive for the pound. We are inclined to lean into that a bit.” The evolving sentiment underscores a growing belief in the pound’s resilience and the potential for further gains in the foreseeable future.
