Sterling to surge to 15-year high against Euro by 2017, says Goldman Sachs
Sterling will climb relentlessly against the euro over the next three years, reaching levels last seen over a decade ago, researchers at Goldman Sachs believe.
According to the bank's new forecasts, the rise of the dollar will be even swifter, thanks to a steep rise in interest rates and to the strength of the US economy, with the greenback expected to hit parity against the euro.
The American bank expects the dollar to reach 140 Japanese yen, while the Brazilian real will drop to 3.10 and the euro will fall to 0.65 pound by 2017, way below the bank’s previous forecast of 0.85, driven down by capital inflows.
“We are in a multi-year phase of a US dollar recovery. The market may be underestimating the scope and persistence of that trend,” the report read, adding that “Euro downside remains our top conviction view.”
Goldman said the European Central Bank remained reluctant to purchase sovereign bonds and implement quantitative easing, but it was likely to adopt a more aggressive stance than expected by the markets.
The bank expects the exchange rate versus the pound to be €1.54 by 2017, which would make Europe a cheaper and therefore more attractive destination for Brits.
However, the underlying weakness of the UK economy doesn't justify such a sharp rise in sterling, other analysts believe.
In the second quarter, Britain’s current account deficit amounted to 5.2% of the gross domestic product, making it the worst in the developed world.
“The current account deficit is probably the worst in history,” said David Bloom from HSBC.
“We have only three problems with sterling: cyclical, structural, and political; and we don’t really believe in this recovery.
“We think that whatever infects the Eurozone also infects Britain. They feed into each other and that is why we think sterling will go down with the euro. The dollar is the only rose between these two thorns.”
Across the Pond, Goldman does not expect the Federal Reserve to raise interest rates until September 2015, later than estimated by some market analysts.
The Fed will, however, move faster and on a steeper trajectory than assumed, as it aims to return to a “neutral” rate of 4%.