The surprise outcome of the U.S. presidential election may have spurred a rally in Britain's pound, but that's not likely to last long, Goldman Sachs said in a note on Monday.
"The U.S. presidential election's outcome has been positive for the British pound, which appreciated even against the U.S. dollar. But, the election of Mr. Trump has not changed our bearish view on sterling," it said, sticking with a forecast for the pound to fall to $1.20 by year end, with the euro fetching 90 pence.
"The recent appreciation of sterling makes the entry point into a short pound trade more compelling," it said, adding the fallout from Brexit will be "extensive."
The pound climbed to as high as $1.2673 in the wake of President-elect Donald Trump's surprise win in the U.S. election, from levels under $1.24 before the results. The pound was fetching $1.2470 at 2:02 p.m. HK/SIN.
Sterling's strength against the greenback came even as the dollar index, which measures the U.S. currency against a foreign-exchange basket, rose to its highest in 11 months.
The euro was fetching 86.16 pence at 2:07 p.m. HK/SIN, down from levels above 89 pence before the results.
The pound likely strengthened due to expectations that Trump could pursue a "fast-track" trade deal with the U.K., Goldman noted.
But it added, "at this stage, we have no reliable information on the stance that the new U.S. administration will have vis-a-vis Brexit." It noted that the U.K. would be unable to sign a trade deal with the U.S. until it formally left the EU.
To exit the EU, the U.K. must invoke Article 50 of the treaty, which starts a two-year negotiation period for the terms of the separation process.