Goldman Sachs sees scope for continued GBP outperformance on the crosses, supported by a strong global risk environment, the BoE’s gradual rate-cut approach, and a favorable UK growth outlook relative to Europe. These factors, combined with resilience to geopolitical risks, suggest GBP strength particularly against EUR.

Key Points:

1. Global Risk and Positive Beta: GBP’s positive beta to global risk should keep it supported, particularly if US equities continue to rise, positioning it favorably against other rate-sensitive currencies like JPY.

2. BoE’s Gradual Rate-Cut Approach: The Bank of England’s gradual easing strategy, with a likely pause in December, makes GBP an outlier among major currencies, adding to its attractiveness.

3. Relative Growth Advantage: A more constructive UK growth outlook, supported by potential Chinese stimulus, bolsters GBP, especially against other European currencies where economic forecasts remain weaker.

4. Resilience to Geopolitical Risks: In scenarios of escalating geopolitical tensions or oil price spikes, GBP is likely to be less vulnerable than other European currencies, adding to its defensive appeal.

Conclusion:

Goldman Sachs expects GBP to maintain strength on the crosses, driven by favorable global risk appetite, the BoE’s cautious easing path, and the UK’s relative growth advantage. The currency’s resilience against potential geopolitical shocks further supports its outperformance, particularly against EUR, which has already fallen to two-year lows against GBP.

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