Goldman Sachs: A Positive Step

Goldman Sachs note that “the sterling story has been anything but straightforward in recent months, but we think investors may have gotten overly negative on GBP. Recent covid developments have been worrisome, and are likely to have some impact on the economic outlook, but that is hardly a UK-specific phenomenon. And the Bank of England’s messaging over recent weeks has been clearer: the impact from omicron on activity is likely to be manageable, it could add to inflationary pressures and - most importantly - the economy has made a lot of cumulative progress. That was the overriding message from last week’s somewhat surprising rate hike, which is a bit different from earlier concerns about making a difficult trade-off between inflationary pressures and an economy still in need of support. It is also worth noting that, against a backdrop of difficult domestic politics, Brexit-related noise has quietened down somewhat. While GBP will continue to be influenced by global risk sentiment, and positioning-related flows could cloud the picture around year end, we think the negative views on Sterling are overdone, and the recent recovery against the Euro can extend.”