Goldman Sachs: GBP/USD could settle around 1.26 in the near-tem

Market strategists at Goldman Sachs published their latest price-forecasts for the GBP/USD pair, in wake of yesterday’s UK court ruling.

Key Quotes:

“We have been thinking about the near-term path for the British Pound in terms of two things.”

“First, there is the question where GBP/$ would trade in the event of "hard Brexit". In recent weeks, we have used a number of approaches to show that Sterling could fall between 20-40 percent relative to pre-referendum levels, with a base for GBP/$ to reach 1.10”

“Second, there is the question what probability to assign to "hard Brexit". 

“We thought the market would price a greater probability of "hard Brexit" as a result, reiterating our near-term target of 1.20 for Cable in the days just after the conservative party conference.”

“Today's High Court decision is a move back in the opposite direction. It reduces the odds that Article 50 will be triggered by March and, more fundamentally, may limit how aggressive the government can be in its negotiating position.” 

“The probability of "hard Brexit" has shrunk, which could see GBP/$ settle around 1.26 in the near term, a half-way house between pre-conservative party conference levels (1.30) and the aftermath of the flash crash (1.22).”

“Big picture, our conviction is that Sterling needs to weaken more, given that the trade-weighted decline is only 14 percent so far, well shy of our 20-40 percent range.”