After initial losses, the Pound has proved resilient on Monday with the Pound to Euro (GBP/EUR) exchange rate hitting a 10-week best buy level just above 1.1510 amid a weaker single currency in global markets.
The Pound to Dollar (GBP/USD) exchange rate dipped to near 1.3410 before a solid recovery to 1.3460.
Goldman sees notable Pound risks surrounding the May local elections.
The bank recommends buying 0.8925 EUR/GBP calls in option markets, which implies potential GBP/EUR losses towards 1.1200. It also recommends buying GBP/USD 1.3250 Puts on expectations of Pound losses.
In its latest update, Goldman Sachs focusses on the political and fiscal risk premium for the Pound.
The Pound came under pressure ahead of the November 2025 budget and Goldman sees an important risk that there will be renewed turbulence and Pound pressure surrounding the May local elections. Heavy losses for the Labour Party would increase the risk of a leadership challenge to Prime Minister Starmer. This would also trigger fresh uncertainties over fiscal policy.
Monetary policy will inevitably be an important factor during 2026 with markets expecting that the Bank of England will cut rates again during the year while the ECB is seen as keeping rates on hold with the scope for interest rate differentials to hamper the Pound.
