One of Wall Street’s largest banks has sharply revised its outlook for the pound, warning that an “escalation in the loop of sell-offs in UK assets” could significantly damage the currency.
Goldman Sachs now forecasts that sterling will fall to $1.20 against the dollar over the next year—a dramatic turnaround from its previous prediction of a rise to $1.30—as the turmoil in Britain’s financial markets extends into its second week.
The investment bank further trimmed its six-month projection for sterling from $1.32 to $1.22, citing an “acute rise” in the risks perceived by bond market investors regarding UK assets.
Meanwhile, the cost of long-term government borrowing has surged to its highest level since 1998 amid fears that Rachel Reeves may struggle to meet her fiscal rules against the backdrop of a sharp economic slowdown. The UK’s GDP contracted by 0.1% in both September and October, leaving the economy stagnant in the third quarter.
Goldman Sachs analyst Kamakshya Trivedi noted that “UK growth momentum has deteriorated” and observed early signs of a decline in private business sentiment. He emphasized that the primary risk to sterling now lies in an intensifying cycle of sell-offs in UK assets coupled with a more challenging fiscal outlook.
Trivedi also warned that the pound might suffer further from anticipated rises in US interest rates—stemming from Donald Trump’s likely inflationary policies—as well as from higher global yields in bond markets, while economists expect the Bank of England to cut rates more frequently than the current money market pricing suggests.
