Pound to Dollar Rate Forecast Next 6 Months: Goldman Sachs Raise to 1.33

March 24, 2024 - Written by David Woodsmith

STORY LINK Pound to Dollar Rate Forecast Next 6 Months: Goldman Sachs Raise to 1.33

Foreign exchange strategists at Goldman Sachs have increased their 6-Month Pound to Dollar exchange rate forecasts (GBP/USD) to 1.33 from 1.30 previously.

HSBC, however, sees a risk of a 5% decline from the recent peak just below 1.29.

GBP/USD posted significant losses during the week with a slide to 1-month lows at 1.2575 before consolidation around 1.26.

Increased market confidence that the Bank of England will cut interest rates in June undermined the Pound.

Transatlantic central bank interest rate decisions were inevitably a key focus during the week.

The Federal Reserve held interest rates at 5.50%, in line with consensus forecasts.

As far as interest rate forecasts are concerned, the median figure of “dot plots” by committee members still indicated three interest rate cuts during 2024 compared with speculation of a move to two cuts.

The margin, however, was very tight with 9 of the 19 members forecasting less than three cuts for the year.

Fed Chair Powell expressed some optimism that higher than expected inflation data over the last two months were due to seasonal elements.

Powell also expects interest rates will be cut this year, although he reiterated that the central bank will need further evidence that inflation is set to reach the target on a sustainable basis before making a move.

Following the meeting, markets were pricing in over a 70% chance that rates would be cut at the June meeting.

The Bank of England (BoE) held interest rates at 5.25% following the latest policy meeting, also in line with expectations.

There was a shift in voting with Haskel and Mann dropping their calls for higher interest rates. There was an 8-1 vote with Dhingra again calling for interest rates to be cut.

Bank Governor Bailey stated that the conditions were not yet right for a cut in interest rates, but the situation is moving in the right direction.

Subsequent comments were more dovish with Bailey confident that second-round effects have been avoided.

According to Bailey; “It’s like the Sherlock Holmes dog that doesn’t bark. If the second-round effects don’t come through, that’s good because monetary policy has done it’s job.”

There will inevitably be divisions within the committee, but Bailey appeared more optimistic with comments that; “What we are seeing is encouraging to me.”

There was a net shift in market expectations.

According to MUFG; “Going forward, we believe it remains a close call but do now see a higher chance of a June cut versus our original call for August being the starting month for cuts.”

The bank also sees the risk of correction; “real yield UK-US spreads also point to the potential for broader GBP underperformance after a period of outperformance year-to-date.”

Commerzbank also considered the risk of out-performance being reversed; “It should also be noted that the GBP has enjoyed an extraordinary rally this year, largely based on a general correction in interest rate expectations towards fewer rate cuts (in addition to surprisingly good data). Therefore, if market sentiment turns, the Pound is one of the most vulnerable currencies.”

ING is less confident in the dollar; “The jump in the dollar appears overdone. The Federal Reserve sent a rather clear message earlier this week: some resilience in activity data won’t be a barrier to cutting as long as inflation shows downward momentum. The dollar rebound appears to have exceeded the rebound in rates.”

Goldman Sachs points to the favourable global backdrop; “We still think that GBP has room to run if these conditions—slightly looser financial conditions and better growth pricing—persist.”

Goldman has also increased its 6-month GBP/USD forecast to 1.33 from 1.30.

HSBC, however, notes the strong increase in Sterling long positions and considers that this makes the Pound vulnerable.

According to HSBC; “More often than not, the following 12-week performance of GBP-USD is negative, and the scale of this downside is historically much larger than the upside.”

It added; “we can see how the last time positioning was close to this stretched in mid-2023, GBP-USD fell around 5% over the next 12 weeks.”

HSBC, therefore, sees the risk of a retreat to 1.23 on a 3-month view.

ING added; “The dominant theme of a lower dollar over coming months, however, should mean that GBP/USD can stay relatively well bid. Yet our forecast profile does not see GBP/USD trading substantially over 1.30 over the next twelve to eighteen months.”

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TAGS: Pound Dollar Forecasts