Can the recent rebound in the GBP exchange rate continue? Goldman Sachs and Deutsche Bank analysts give a pessimistic outlook

Recently, the GBP/USD has surged remarkably—up 1.08% in a single day on December 3rd, reaching a monthly high of 1.3350, and the market was once euphoric. At the same time, the EUR/GBP also fell by 0.63% to 0.8737. Many investors are wondering, is the pound about to reverse its downward trend?

But don’t celebrate too early. International investment banks have a completely different view on the long-term prospects of the pound.

**Short-term positives vs. long-term concerns, what is the market betting on?**

The short-term strength of the pound is actually not complicated. U.S. November ADP data underperformed expectations, and market forecasts suggest the Federal Reserve may continue easing under the Trump administration, which directly impacts the dollar. Meanwhile, after the UK budget announcement, market concerns over UK debt temporarily eased, with Ebury strategists even suggesting that “the elimination of budget uncertainty could provide room for the pound to rebound before the end of the year.”

The Organization for Economic Co-operation and Development (OECD) further stoked the flames, releasing a report predicting the Bank of England will cut interest rates twice before June next year, with rates eventually falling to 3.5%. It also raised the UK’s economic growth forecast for 2026 from 1% to 1.2%, and for 2027, an increase to 1.3%. UK Chancellor Rishi Sunak welcomed these projections.

**But this is precisely the problem—monetary easing policies are about to start**

However, Goldman Sachs and Deutsche Bank analysts are not convinced. Deutsche Bank pointed out that the pound is still far from out of trouble. UK spending is expected to face significant pressure over the next two years, after which a wave of austerity measures will likely be necessary. More painfully, they stated that “UK budget issues will become a long-term challenge, with negative news potentially continuing to emerge. Without clear solutions, this problem is likely to keep exerting potential pressure on the pound.”

Goldman Sachs’s stance is even more firm. They believe that fiscal constraints in the UK will remain the main challenge for the pound, especially compared to other G-10 European currencies. Coupled with increasing risks in the UK labor market, this will create additional downward pressure on interest rates—that is, the central bank may be forced to cut rates further, further weakening the pound.

Goldman Sachs’s core argument: “The combination of fiscal tightening and monetary easing in the UK will negatively impact the pound, especially relative to other European currencies.”

**Exchange rate expectations reflect pessimism**

Goldman Sachs has raised its forecast for EUR/GBP: expecting it to rise to 0.89 in three months, 0.90 in six months, and 0.92 in one year. These figures clearly indicate an expectation of continued depreciation of the pound against the euro.

In simple terms, the current rebound may be just a fleeting moment. The biggest enemy of the pound is not dollar appreciation, but the long-term dilemma of its own policy mix.