"We continue to believe that domestic conditions in the UK are not yet in the same position as most other DM (Developed Markets) economies, and the case for a pause is weaker than elsewhere," it says. This, together with its cyclical beta, should continue to move GBP higher over time."

Pound Sterling Outlook Dims: Goldman Sachs Trims 3-6 Month Forecasts

Goldman Sachs' foreign exchange analysts have updated their three and six-month estimates for the Pound Sterling (GBP) against the Euro (EUR) lower in light of the latest Bank of England rate decision last week.

The Pound to Euro exchange rate was trading around 1.16335 at the time of writing, up 0.15% for the day.

Following the Bank of England's (BoE) policy decision last week, Goldman Sachs predicts that UK rates will peak at slightly lower levels, with only one more rate hike possible.

This will limit the opportunity for near-term Pound gains, but it remains optimistic about the medium-term prospects.

"We are still Sterling bulls and believe there will be more rounds in this fight," the statement said, "but this week demonstrated less urgency than the previous decision implied."

Forecasts for the three and six-month Pound to Euro (GBP/EUR) exchange rates have been reduced significantly to 1.1630 and 1.1765, respectively, from 1.1765 and 1.1900 before.

Nonetheless, on a 12-month basis, it retains a projection of 1.1900.

On Tuesday, GBP/EUR was trading near 1.1610.

According to Goldman Sachs, the Bank of England's policy decision last week was slightly disappointing and perplexing, albeit the bank was not shocked by the overall moderation in language.

Goldman did not expect the better-than-expected June inflation data to have such an impact on the bank's thinking at the last meeting, especially because the most recent wage data was stronger than expected.

Following the latest move, the bank's economists have revised down their projections for the terminal rate and believe that there are additional negative risks.

In this setting, a rate hike in September could be the final one of the current cycle.

Nonetheless, Goldman Sachs retains a bullish outlook on the pound.

"We continue to believe that domestic conditions in the UK are not yet in the same position as most other DM (Developed Markets) economies, and the case for a pause is weaker than elsewhere," it says. This, together with its cyclical beta, should continue to move GBP higher over time."