Goldman Sachs Says Pound Now Most Overvalued Among Major Currencies
By Aboki Forex —
The British pound is facing growing pressure after its recovery from the post-Brexit selloff made it the most overvalued currency among major peers. That is according to Goldman Sachs Group Inc.
Sterling has overshot its fundamentals. Brexit likely weighed on the currency's fair value by about 6 percent, said Stuart Jenkins, a strategist in London. After a strong recovery in real terms, sterling is now the most overvalued G10 currency.
The pound has risen roughly 1.5 percent against the dollar since Britain formally left the European Union in 2020. But it remains about 10 percent below its pre-Brexit referendum level. With much of that discount now erased, some analysts see less room for further gains.
The currency faces a tougher environment in the months ahead. A relatively dovish Bank of England compared with the European Central Bank and the Federal Reserve could weigh on the pound. Political uncertainty is also adding to volatility. Traders are waiting for the results of the Makerfield by-election due early Friday. That result may trigger a bid to oust UK Premier Keir Starmer.
Jenkins acknowledged that sterling's valuation looks less demanding over longer time horizons. On a 30-year real trade-weighted basis, the currency is broadly in line with historical norms. That measure reduces the impact of Brexit. Forming closer trade ties with the European Union may also offset the challenging current valuation picture, he added.