Goldman Sachs is out with its near-term forex outlook
Investing.com - U.S. President Donald Trump’s aggressive trade policies will "cancel out" a Brexit-linked weakening of the British pound and take sterling back to the level it was trading at before the U.K. chose to leave the European Union, according to BCA Research.
In a note to clients, the strategists argued that the loss of U.S. "exceptionalism," the belief among some market participants that U.S. assets will outperform their global peers, in American stocks and bonds because of Trump’s erratic tariffs will "put downward pressure" on the dollar.
The pound would likely be a "big winner" should this slide in the dollar transpire, they added.
Following Britain’s decision to exit the EU in 2016, the pound dropped against the greenback as investors fretted over the U.K.’s position as a "privileged haven" for assets, the BCA analysts said.
But, they said, "the tables have turned" after Trump embarked on a campaign to raise tariffs on a host of countries that has threatened to upend the global trading order.
Should the U.S. effectively carry out its own departure from the world trade, the U.S. could suffer the same loss of "privileged haven status" as Britain did, the analysts flagged, adding that this would result in a "structural dislocation in the dollar."
"Given that an exchange rate is a relative price, ’America’s Brexit’ will cancel out ’Britain’s Brexit,’ and take pound/dollar back to its pre-Brexit range" of between roughly $1.50 to $1.80, they wrote.
For that reason, the BCA analysts asid they are now "long pound/dollar" and "fully expecting" the pound to reach $1.60 "within the next couple of years." On Friday, sterling was last trading at $1.3477.
Meanwhile, an exodus from the U.S. dollar may also mean a boost to Bitcoin, they said, predicting that the world’s most well-known cryptocurrency could climb to $200,000 in the "next couple of years" from its current level of $106,428.2.
Regardless of the potential for a slump in the digital token, this surge in Bitcoin "remains one of our high-conviction structural long positions," the analysts said.