Strange things are unfolding in the financial market, with the British pound outperforming the US dollar! Currency strategists at Goldman Sachs have identified sterling as one of the key beneficiaries of the US dollar's prolonged weakness. 

Experts at the investment bank believe that the British currency will be one of the biggest winners from the extended decline in the greenback, which has come under pressure following the US Federal Reserve’s decision to cut interest rates to a range of 4.75% to 5.00%.

The bank's analysts are now bullish on the British currency, predicting a 12-month rally to $1.4000 from $1.3200. This optimistic outlook is driven by the Bank of England’s reluctance to follow the United States and Europe in cutting interest rates. This divergence in central bank policies has fueled a 4.5% rise in the British pound, making it one of the world's top-performing currencies in 2024. However, they caution that Britain will eventually have to "catch up on lowering rates," with the government continuing to support and stimulate the economy.

Shortly before the Fed’s rate cut, Goldman Sachs analysts pointed to a strong rally in gold, noting its inverse correlation with the greenback, which has been losing ground for three consecutive months. By mid-September, the greenback had lost 4.03% against a basket of six major reserve currencies.

However, the UK government should temper its optimism about the pound’s rally as economic challenges are coming to the forefront, experts warn. Chief among them is the country's massive national debt, which is now at levels not seen since the 1960s. Against this background, British Prime Minister Keir Starmer has hinted at potential tax hikes, although he has pledged not to raise taxes on working citizens.