GBP/USD is set to extend its bullish momentum to 1.3500 next year, the Head of global FX at Goldman Sachs said in his latest note, citing correlation with equities and diminishing fears of global recession.

Key quotes

GBP has a “reliably positive relationship with higher equity prices.”

“Sterling’s recent rise is of course partly about the broader dollar weakness, but since early November the pound has also strengthened on a trade-weighted basis because it tends to do especially well in an environment of moderating interest rate volatility and buoyant equity prices."

“That has been the backdrop since early November and we expect more of that in the year ahead. That is why we think Sterling is one of the currencies that have more room to appreciate as the markets embrace a ‘soft landing’ view.”

“Looming elections have the potential to both incentivize additional fiscal support and bring about somewhat reduced trade frictions with the EU, both of which should help support domestic growth, help avoid recessionary risks and boost the Pound.”