GSAM Is Bearish on Pound Given Tighter Policy Could Hurt Growth
Goldman Sachs Asset Management is betting against the pound, saying tighter policy could weaken the U.K. currency.
The firm is underweight sterling and positioning for the gilt curve to steepen, Gurpreet Gill, macro strategist for the global fixed income team, said in emailed comments on Tuesday.
“High inflation data sensitivity to energy prices and supply implications of Brexit further complicate the inflation outlook,” she said in emailed comments. “This has led financial markets to interpret a more hawkish policy outlook as an unfriendly development, with adverse implications for growth.”
Fears of a spurt in inflation compounded by a supply-chain crisis and an end to the government’s furlough program have rattled some investors, who worry the Bank of England may chose to raise interest rates sooner than warranted, jeopardizing the economic recovery.
U.K. natural gas futures soared to a fresh record on Tuesday. While the market has tightened globally, Britain is in a particularly tight spot, because it lacks large storage facilities and relies heavily on imports of the fuel. Inflation accelerated to the strongest pace in more than nine years in August.
“The potential for hawkish policy developments would weigh on the currency given the large U.K. current account deficit,” GSAM’s Gill added.
BlueBay Asset Management LLP, Nomura International Plc and Deutsche Bank AG all turned increasingly bearish on the currency last week.
Not everyone’s feeling wary though. State Street Corp. is betting there are opportunities rather than danger in store for the pound. The firm, which manages $3.9 trillion in assets, sees the currency as cheap and views further dips as an opportunity to buy, according to Aaron Hurd, a senior portfolio manager.
“We really don’t see doom on the horizon,” Hurd said in emailed comments. “Just challenges that are tough, but not as dangerous as they appear,” he said.
State Street says inflation still seems transitory and global supply bottlenecks should ease next year. The Bank of England, meanwhile, is unlikely to be forced into a dangerously fast pace of tightening, Hurd said.
Sterling is one of the worst performing currencies in the Group-of-10 economies over the past six months and sentiment over the next three months is near its most bearish since March, according to risk reversals, a gauge of market positioning.
Still, strategists see the currency ending the year at $1.39, up 2% from current levels, according to the median forecast from 76 firms surveyed by Bloomberg. Options pricing data point to a 57% chance of the currency touching that level by Dec. 31.
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