Goldman Sachs has revised its GBP forecasts upwards due to improved UK growth, fiscal discipline, and limited exposure to US tariffs. The stability in UK politics, alongside a robust services sector and favourable rate differentials, has also contributed to this assessment.
The bank now predicts GBP/USD rates will reach 1.28 in three months, 1.32 in six months, and 1.35 in twelve months. Conversely, EUR/GBP forecasts have been adjusted to 0.84, 0.83, and 0.82 over the same periods.
Uk Services And Labour Markets
UK services and labour markets are exceeding expectations, with government messaging on defense spending bolstering investor confidence. The UK faces lower risks from US tariffs compared to the Eurozone, diminishing potential negative impacts on GBP.
The Bank of England’s approach to rate cuts is anticipated to be more measured than the European Central Bank’s, which supports UK front-end rates and encourages inflows.
Goldman’s decision to raise projections for sterling stems from a confluence of economic and policy factors that are difficult to ignore. Faster growth, a commitment to managing public finances carefully, and reduced vulnerability to US trade measures provide a firm basis for their shift in stance. The political environment has remained relatively steady, which, in itself, has fostered confidence. Additionally, a services-driven economy continuing to outperform expectations means key elements are aligning in favour of a stronger pound.
Short-term interest rate dynamics are playing a special role. A more cautious adjustment to monetary policy by the Bank of England, particularly in comparison to its European counterpart, strengthens the front end of UK rate markets. Higher short-term yields create an environment that makes sterling-denominated assets more appealing. This, combined with an economy proving resilient in employment and service-sector metrics, presents conditions where capital flows remain supportive.
External Risk Factors
While the European Central Bank is expected to ease policy at a faster pace, the more patient strategy from the UK’s central bank helps maintain a constructive stance towards the pound. With rate differentials favouring sterling, the prospect of sustained inflows cannot be overlooked.
External risk factors must also be examined with detail. Trade policies from the US create different challenges for regions, yet exposure to these headwinds varies. Britain finds itself in a relatively better position than the Eurozone, where tariff implications carry more weight. A less direct impact from trade restrictions shields the currency from reactive declines that could otherwise emerge.
Market participants should acknowledge how these factors affect positioning. With upward momentum supported by growth outperformance and disciplined fiscal planning, expectations for sterling have fundamentally shifted. If the trends Goldman identifies persist, this may alter how risk-reward calculations are approached in the months ahead.
