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Jan 13 - 09:55 AM

Goldman Sachs: Three Reasons Not to Chase GBP Lower in the Near Term

By eFXdata  —  Jan 13 - 09:00 AM

Synopsis:

Goldman Sachs advises against further selling of GBP, citing potential for recovery in risk appetite, fiscal risk moderation, and delayed positive growth data as supportive factors.

Key Points:

  1. Risk Appetite Recovery:

    • Recent GBP weakness is partly driven by broader risk-off sentiment in FX markets.
    • A rebound in global risk appetite could provide support to GBP.
  2. Fiscal Risk Premium:

    • Macro conditions and evolving net supply dynamics suggest eventual compression of fiscal risk premium in gilts.
    • This should reduce perceived fiscal risks for the currency.
  3. Growth Data Lag:

    • While UK growth momentum has recently softened, upcoming data reflecting increased government spending and investment could surprise positively.
    • These improvements are not yet fully visible in the current market sentiment.

Conclusion:

Goldman Sachs recommends caution on further GBP downside in the near term, citing supportive factors that could stabilize or improve the currency's outlook.

Source:
Goldman Sachs Research/Market Commentary

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