Goldman Sachs Says ‘Stick to Guns,’ Bet Pound to Rise

By Bo Nielsen

Jan. 21 (Bloomberg) -- Investors should keep betting the British pound and gilts will rise, according to Goldman Sachs Group Inc.

“We remain bullish on sterling,” Thomas Stolper, a Goldman Sachs economist in London, wrote in an e-mailed report today. “U.K. fundamentals are much better than many believe.”

The U.K. currency fell to the weakest since 2001 versus the dollar and dropped a fourth day against the euro after Bank of England Governor Mervyn King said he’s not opposed to sterling’s weakness as the lowest interest rates since 1694 fail to prevent the economy from shrinking. King also said officials may start buying assets to revive the recession-mired economy.

The pound dropped 1.1 percent to 93.65 pence per euro as of 1:55 p.m. in London. It fell 0.8 percent to $1.3798.

“The likelihood of a near-term improvement in business activity suggests sterling could bounce back quite quickly,” Stolper said. “We therefore stick to our guns and remain long sterling. U.K. gilts should rally to 3.2 percent by the end of this quarter.”

The yield on the 10-year gilt was at 3.44 percent.

To contact the reporter on this story: Bo Nielsen in Copenhagen at bnielsen4@bloomberg.net