Goldman Says Sterling Most Overvalued G10 Currency
Goldman Sachs strategists say sterling has become the most overvalued G10 currency after its post-Brexit recovery, warning of growing pressure ahead.
Goldman Sachs has declared the British pound the most overvalued currency among the G10 group, citing its strong recovery from post-Brexit lows as having overshot fundamental fair value.
According to a note from strategist Stuart Jenkins, sterling has risen about 1.5% against the US dollar since the UK formally left the European Union in 2020, but remains roughly 10% below its pre-referendum level. However, in real trade-weighted terms, the pound has overshot fundamentals, with Brexit likely having reduced the currency's fair value by around 6%. This makes sterling the most overvalued G10 currency, according to Goldman's models.
For foreign exchange and currencies traders, this assessment signals potential downside risk for GBP crosses. An overvalued currency often faces mean-reversion pressure, especially if the Bank of England's monetary policy stance shifts or if global risk sentiment deteriorates. Traders tracking sterling on NowPrice's live fx dashboard should watch for any catalyst that could trigger a correction, such as weaker UK economic data or a more dovish BoE tone.
Looking ahead, the key question is whether sterling's overvaluation will unwind gradually or abruptly. Market participants will focus on upcoming UK inflation and GDP releases, as well as any shifts in BoE guidance. A sustained move lower in GBP/USD could test support levels near 1.25, while a break below that may accelerate losses. Conversely, a hawkish surprise from the BoE could temporarily support the pound, but Goldman's analysis suggests the long-term bias is skewed to the downside.