The Pound to Dollar (GBP/USD) exchange rate found support below 1.32 in early April and has rallied strongly to above 1.35, recouping Iran-related losses as the dollar has lost ground. Risk appetite has also recovered which has helped underpin the Pound.
Over the last few months, Goldman Sachs has recommended selling GBP/EUR to take advantage of expectations of Pound vulnerability due to UK economic and political risks.
The bank still considers that the Pound is vulnerable, but has changed its stance and now considers that Pound vulnerability is best expressed through selling GBP/USD. The bank has a 3-month GBP/USD target of 1.33.
Goldman maintains a cautious stance towards Sterling on political and economic grounds. The bank notes political risks surrounding the May local elections, especially with opinion polls still indicating that the Labour Party will suffer sharp losses, increasing the risk of a challenge to Prime MInister Starmer once the Iran conflict ends.
The bank also notes that the UK economy will be vulnerable to the energy shock and there is also a risk that markets are being complacent over the domestic and global economic risks, increasing the Pound risk profile.
