/CHF: Goldman Sachs: Go Long On Tail Risk Receding

Goldman Sachs note that "while growth in the UK and Euro area has hit some unexpected headwinds, a number of tail risks have waned and we think it is enough for the risk premia in GBP and CHF to unwind. On a tactical basis, Sterling should be supported by its quick vaccine rollout which has helped suppress the risks from new covid variants. The BoE's judgment that negative interest rates are not feasible for six months also removes one of the negative factors that had been weighing on the currency because that six-month window covers a time period when protective or pro-cyclical cuts would have been most attractive. More structurally, international investors have significantly cut their exposure to UK assets since the Brexit vote, and could be coaxed back given the reduction in uncertainty and the UK's high share of sectors that should have a lot of room to bounce back post-vaccines. On the other side of the equation, CHF faced extraordinary appreciation pressure last year given its status as the European safe haven asset, particularly around periods of heightened political uncertainty. But a number of those risks have also relaxed following the Brexit deal, a more orthodox policy approach in Turkey, and now Mario Draghi's invitation to become the next Prime Minister of Italy. We recommend investors go long GBP/CHF targeting CHF1.30, which is consistent with our new EUR/GBP and EUR/CHF 3m forecasts of GBP0.86 and CHF1.11."