The GBP/USD exchange rate achieved a peak of $1.32 on 27 August, marking a two and a half year peak, with projections indicating sustained momentum through the year's end. The United Kingdom's economic expansion, coupled with the installation of a new Labour government in early July, has significantly bolstered investor confidence, as noted by key US investment banks.
Forecasts by Bank of America's currency strategy team suggest an upward trajectory for the pound sterling, potentially reaching $1.41 against the dollar by the end of 2025, a four-year high. By the year's conclusion, an ascent to $1.35 against the dollar is anticipated, marking a two-year pinnacle. So far, the GBP/USD pair has risen by 3.19% this year, with a 2.56% increase in the past three months alone.
Kyle Chapman, an FX markets analyst at Ballinger Group, shared with Euronews, "The pound's runaway performance is in large part a rebound from a long stretch of underperformance in the years after the Brexit referendum in 2016. A confluence of factors has precipitated sterling's rise this year." These factors include a hawkish Bank of England, political stability, growth advantages over the eurozone, and an uplift in UK sentiment.
The Bank of England's hawkish stance contrasts with quicker interest rate cuts by the US Federal Reserve and the European Central Bank (ECB), bolstering the pound. While the Federal Reserve and ECB are poised for additional rate cuts by the end of 2024, the Bank of England plans only one more reduction this year.
Furthermore, the upcoming Labour budget on 30 October is expected to enhance UK asset values and attract investor interest, particularly if the government strengthens the UK's fiscal system. The private sector's robust performance also plays a crucial role in supporting the pound, with Goldman Sachs highlighting the potential for firm activity data to uplift the UK's outlook and maintain a competitive Bank of England stance.
Source: Euronews