Forex Flash: EUR/GBP could edge higher to 0.9400 within 12 months – Goldman Sachs

FXstreet.com (Barcelona) - FX markets remain dominated by offsetting policy forces, which can be described as a non-cooperative Global Exchange rate Mechanism. Within such a regime, much of the market focus has to be on the risk of ‘realignments’, or policy shifts, which have the potential to move a currency to a new level. Such a shift has happened in the Yen already. “Our view is that the risks from current levels are broadly balanced, and this is reflected in our new forecasts, centered around USD/JPY at 95.00.” writes the Economics Research Team at Goldman Sachs.

In Sterling, this realignment is ongoing, but we believe additional Sterling weakness is more likely versus the Euro, where the strict inflation mandate of the ECB remains a marginal positive for the currency. “Our new EUR/GBP forecasts call for 0.9400 in 12 months’ time from 0.8500 previously. Regarding the Dollar, correlation patterns suggest that better US economic performance will once again fail to translate into appreciation. This would also be consistent with the typical balance of payments response to an improvement in US demand.” they add.