Monetary policy takes over as driver of GBP weakness – Goldman Sachs

Research Team at Goldman Sachs, suggests that following the Brexit surprise, they revised their Sterling forecasts weaker, but – amid lots of doomsday scenarios for the Pound – resisted the temptation to forecast a free-fall.

Key Quotes

“Now that markets have settled somewhat, we are switching to forecast a second leg of weakness for the Pound, as the Bank of England’s policy response drives the currency weaker. Our new EUR/GBP forecast is 0.90, 0.86 and 0.80 in 3-, 6- and 12- months (from 0.85, 0.82 and 0.78 previously), i.e. builds in more Sterling weakness in the near term. We also revise our EUR/$ forecast to 1.08, 1.04 and 1.00 in 3-, 6- and 12-months (from 1.12, 1.10 and 1.05 previously). These changes imply a new path for GBP/$ of 1.20, 1.21 and 1.25 in 3-, 6- and 12-months, i.e. substantially more frontloaded downside than in our forecast in the immediate aftermath of the Brexit vote (1.32, 1.34 and 1.35).”