GBP: 2 Key Reasons To Go Short Targeting 1.20 – Goldman Sachs

The US Presidential election’s outcome has been positive for the British Pound, which appreciated even against the USD.

But, the election of Mr. Trump has not changed our bearish view on Sterling. As we did after the UK High Court’s decision and the Bank of England's Monetary Policy meeting on 3 November, we here reiterate our view that the fall-out from Brexit will be extensive and maintain our year-end target for GBP/$ of 1.20 and for EUR/GBP of 0.90.

The recent appreciation of Sterling makes the entry point into a short GBP trade more compelling. We have extensively discussed the rationale for our bearish view on the currency (see here and here).

We reiterate our call and the main reason behind it.

First, political risks related to (i) a "hard Brexit" in case the Supreme Court confirms the High Court ruling, and (ii) to Mr. Trump showing willingness to negotiate a trade agreement with the UK in a short period of time

Second, the economic risk of a more hawkish Bank of England in relation to the output-inflation trade-off.