Sterling still looks vulnerable to veering lower, says Goldman Sachs,
adding that it would be prudent not to get cozy with the idea that the
British economy has escaped unscathed from the Brexit vote.
The British currency is trading around $1.33 against the U.S. dollar while the euro is fetching roughly 84 pence.
That compares with Goldman’s three-month call, issued in July, to see
the pound-dollar pair reach a low of $1.20 and the euro to rise to 90
The pound has fared better than Goldman had
anticipated after the Bank of England in August launched an aggressive
stimulus program to cushion the British economy from the country’s vote
on June 23 to leave the European Union.
On Thursday, the pound — which investors have shorted at record levels recently— leapt after an unexpectedly strong reading in U.K. manufacturing PMI in August, which hit a 10-month high.
“majority of U.K. data has surprised on the upside over the past
month,” supporting the pound’s performance, said Goldman strategists
Silvia Ardagna, Robin Brooks and Michael Cahill in a research note
released early Thursday, before the PMI data were issued.
is leading investors to take the view that the outlook may not be as
negative as thought right after the referendum. If they are right, then
the [central bank] will not deliver further stimulus before year-end,”
they said. “We disagree with this view,” in part because “not all of the
data that has been released is the most relevant to assess the economic
impact of the referendum’s outcome.”
Stronger-than-expected third-quarter retail sales in July,
for example, shouldn’t be viewed as a leading indicator as the
correlation between growth in quarterly retail sales and the portion of
gross domestic product that gauges household spending is “quite low,”
the strategists said.
Even with the rebound in U.K.
manufacturing PMI in August, Britain’s gross domestic product “would
still be flirting with recession” in the second half of the year.