Goldman Sachs: First Mover Advantage

Goldman Sachs note that "sterling has been outperforming of late, and while vaccinations are probably helping boost the optimistic narrative - about 25% of the population has received at least the first dose - we are doubtful this is the only driver. Indeed, FX markets are forward-looking, so reaching herd immunity a few months earlier than its peers should have a relatively modest impact on the currency. Moreover, there are other factors underpinning recent GBP appreciation. First, we are likely observing some lagged follow through from the clearing of Brexit uncertainty, since the trade agreement coincided with concerns over the new Covid variant and renewed lockdowns. Second, the UK economy is particularly exposed to the high-contact service sectors that have been negatively affected by activity restrictions, and should bounce back strongly in coming quarters when excess savings are unleashed. Finally, the BoE's finding that negative rates are not feasible at the moment has helped clear some of the policy headwinds. Taking these factors together, we maintain our recommendation to go long GBP/CHF with a target of CHF1.30, as we see room for CHF to depreciate more than other reserve currencies as European tail risks recede."