Goldman Sachs Pound forecast puts the GBP under the spotlight, where the bank’s experts believe that the currency is overvalued by 10%. What is the next for Pound?
Goldman Sachs Pound forecast
Goldman Sachs experts Robin Brooks, Silvia Ardagna and Michael Cahill, believe that the Pound is actually currently overvalued by almost 10%, even though the value of Sterling has dropped by more than 17% in the four consecutive months after the Brexit vote. Moreover, Goldman’s analysis of why Pound has the potential to drop further says:
“The signal that Sterling is cheap therefore ignores the ructions that Brexit may cause for the UK economy and – potentially – a drop in fair value. As a result, we use a different approach, which calculates the depreciation needed to bring the current account to a new, post-Brexit equilibrium. That approach says that GBP needs to fall between 20-40 percent from pre-Brexit levels, so the declines since June have only brought us to the lower bound of this range.”
A big number of currency models these days show that Sterling’s huge crash since the EU referendum implies it is cheap in the grand scheme of things. The pound is way below the levels it should be at as an outcome of the “hard” Brexit political turmoil wave that has been present in the country in the past weeks.
Pound is not undervalued
On the other hand, Goldman Sachs experts state that Pound is not undervalued, as the significant move in the UK’s current account deficit took place, causing the Sterling to lose its positions. Goldman Sachs commented:
“Putting this together, we find that the Sterling depreciation through October has probably taken the underlying current account deficit from just over 6 percent to about 3.3 percent.”
The pound has dropped on Tuesday, losing more than 1.2% , as the Phillip Hammond’s remarks indicated that he does not see any reason why he would reject any future requests from the Bank of England (BoE) for more quantitative easing (QE).
The Sterling then has rallied, as the Governor of BoE Mark Carney has updated the markets on the progress of monetary policy in the UK.
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