Synopsis:

Goldman Sachs sees scope for continued gains in GBP, supported by improving UK data surprises, growing domestic confidence, and a relatively hawkish BoE stance. While some soft spots remain in the labor data, the broader macro backdrop is turning more Sterling-supportive.

Key Points:

• UK Data Surprises Turn Positive:
  Goldman’s proprietary data surprise index for the UK has shifted into positive territory since March, helped by strong Q1 GDP figures.

• BoE Hawkishness Helps Sentiment:
  A relatively hawkish tone from the Bank of England is adding to bullish GBP sentiment, especially when compared to other cyclical G10 currencies.

• Sterling Positioning Builds:
  Investor positioning in GBP is now longer than in NOK, SEK, CAD, AUD, and NZD—reflecting increasing confidence.

• Mixed Labor Market Signals:
  Although HMRC payroll data indicates some jobs stagnation, Goldman remains constructive overall, seeing it as a soft patch rather than a structural problem.

• Global Risk Backdrop Supportive:
  A broader improvement in global risk sentiment is also aiding Sterling. However, Goldman notes that the drop in EUR/GBP has likely overshot model-based expectations, which may limit further downside.

Conclusion:

Goldman maintains a constructive outlook on GBP, citing a combination of better UK macro data, hawkish central bank tone, and supportive global risk dynamics. While EUR/GBP may be near technical support, overall GBP upside remains justified in the short to medium term.