Goldman Sachs says GBP/USD can extend gains as UK political risk premium fades. The pair near 1.3240 leaves room for further sterling strength. Upcoming data will test.
Alpha Score of 45 reflects weak overall profile with strong momentum, poor value, poor quality, weak sentiment.
Sterling has been one of the better-performing major currencies this quarter, with GBP/USD trading near 1.3240 despite political change in the UK and a broadly stronger dollar. Goldman Sachs analysts wrote in a note that the currency's resilience is a sign the market had already discounted much of the political uncertainty. The transition to a new government created some volatility initially. Sterling quickly recovered, they said.
The dollar's rally this quarter has been the dominant force in forex markets, pressuring most G10 pairs. The pound has held up better than peers like the euro and yen. Goldman Sachs attributes this to the narrowing of the UK political risk premium. The bank said the market had already priced in a change in leadership, leaving less room for further negative surprises.
From a rates perspective, the spread between US and UK benchmark yields has moved against sterling. Yet the currency has not fallen proportionally. According to the bank, the political factor was the dominant driver of the earlier selloff, and its removal has changed the calculus. UK gilt yields edged lower, with the risk premium fading, supporting sterling through the interest rate channel.
The next leg for GBP/USD will depend on incoming data, particularly UK inflation and the Bank of England's next rate decision. Goldman Sachs expects the pound to grind higher if upcoming data confirms the economy is stabilising. The bank said a strong inflation print or a hawkish BoE signal would reinforce the bullish view, while a soft print would renew pressure and test the 1.30 support area.
The bank's analysis also considered the current account deficit. A larger deficit typically weighs on a currency. Political stability improves the funding environment. Goldman said the UK's external position has stabilised, reducing one source of vulnerability.
Goldman Sachs itself carries an Alpha Score of 45 on AlphaScala, rated Mixed in the financials sector. That score reflects the stock's valuation and momentum relative to peers, not its currency views.
The call for further sterling gains is conditioned on no new political shocks. Goldman Sachs said a surprise from the new government's fiscal plans or a BoE pivot would change the outlook. For now, the path of least resistance is higher, the bank said.
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