Goldman Sachs: GBP technique forward of the February BOE assembly

The BoE’s upcoming decision presents a complex backdrop for GBP, given the mixed economic data. While a 25bp cut is well-priced, the focus will be on the Bank’s tone and projections. Goldman Sachs expects gradual GBP weakness rather than an immediate sharp sell-off, but risks remain for a more dovish surprise.

Key Points:

1. BoE Expected to Cut Rates by 25bps:

   • Markets have already priced in ~73bps of total rate cuts for 2025, but Goldman Sachs expects 100bps of cuts.
   • The BoE’s tone and forecasts will be key in shaping the GBP outlook.

2. Risks for a More Dovish BoE:

   • UK data remains mixed, making it unclear how the BoE will react.
   • The BoE may revise growth and inflation forecasts lower, creating downside risks for GBP.
   • If the BoE capitulates on its hawkish stance, GBP could face sharper depreciation.

3. Market Risks and Global Factors:

   • Higher global yields earlier this month sparked fiscal concerns—a repeat could hurt GBP.
   • A continued deterioration in UK data could also add to GBP downside.

Strategy & Conclusion:

Goldman Sachs maintains a gradual bearish view on GBP but thinks being flat is the best position in cross/GBP for now.

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