Investment bank Goldman Sachs has issued a fresh trading recommendation to clients, advising them to short the pound against the US dollar on any rally, as concerns mount over the UK's economic trajectory. The call, made public on Friday, reflects growing bearish sentiment among institutional investors towards sterling, which has already lost more than 4% of its value against the greenback since January.
The pound was trading around $1.2420 on Friday afternoon, down from $1.2550 earlier in the week, as markets digested the latest inflation data and mixed signals from the Bank of England. Goldman's strategists argue that the UK's inflation problem remains more entrenched than in the US, limiting the scope for rate cuts and weighing on growth prospects. 'Any bounce in cable should be sold into,' the bank said in a note to clients, using market slang for the GBP/USD currency pair.
The recommendation has added to pressure on the FTSE 100, which slipped 0.3% to 8,215 points by midday, with exporters benefiting from a weaker pound but domestically focused stocks suffering. The FTSE 250, more sensitive to the UK economy, fell 0.6% to 20,450. Among individual movers, housebuilders and retailers were notably weaker, with Persimmon down 1.8% and JD Sports falling 2.1% as currency volatility hit sentiment.
For UK investors and pension holders, the implications are significant. A weaker pound boosts the value of overseas earnings for FTSE 100 multinationals, but it also pushes up import costs, feeding into higher prices at the petrol pump and supermarket. Pension funds with large overseas holdings may see a short-term currency boost, but the broader picture is one of persistent cost-of-living pressure.
Analysts at Barclays struck a more cautious tone, noting that while the fundamental case for a weaker pound is compelling, the currency is already pricing in much of the bad news. 'Sterling is cheap by historical standards, but that does not mean it cannot get cheaper,' said a senior currency strategist. 'The risk is that the Bank of England is forced to hold rates higher for longer, which could squeeze growth further.'