Pound Sterling to Dollar Exchange Rate Forecasts Live: 1.18-1.25

June 30, 2024 - Written by Frank Davies

STORY LINK Pound Sterling to Dollar Exchange Rate Forecasts Live: 1.18-1.25

Danske Bank forecasts a Pound to Dollar (GBP/USD) exchange rate slide to 1.18 on a 12-month view.

Credit Agricole expects GBP/USD to be held at 1.25 at the end of 2024 before a significant recovery to 1.35 at the end of next year.

GBP/USD dipped to 6-week lows just below 1.2620 during the week and struggled to make more than a very limited recovery.

The dollar held a firm overall tone, especially with European political risks, which hampered GBP/USD.

Assuming no shock in the July 4th General Election, attention will focus on the economy and Bank of England (BoE) policy.

According to Credit Agricole; “several clients have expressed their hopes that a policy of ‘gradual rapprochement’ with the EU could weaken some of Brexit’s growth-negative impact. In all, FX investors hope that a majority Labour government could support domestic investment at a time when BoE monetary easing could support the UK’s economic outlook.”

As far as BoE interest rates are concerned, markets are pricing in over a 50% chance of an August cut.

Unicredit notes some risk that the data will not back a near-term rate cut.

It added; “Second, a change in personnel on the MPC, with Clare Lombardelli due to replace Ben Broadbent as Deputy Governor for Monetary Policy at the end of this month. Although her views on monetary policy are relatively unknown, she is likely to be more hawkish than Mr. Broadbent. We still expect the first rate cut in August, but the decision appears to be very finely balanced. We expect a total of 75bp of rate cuts this year.”

Wells Fargo took a similar view; “For now, the BoE still appears on track to deliver an initial rate cut in August. That said, still elevated wage and price growth should keep policymakers cautious regarding the pace of its rate cuts, and we have pared back the amount of BoE easing we expect to be delivered this year.

It added; “We now believe the Bank of England will cut its policy rate only twice this year, in August and November, which would see the policy rate end 2024 at 4.75%.”

Danske Bank commented; “We remain negative on GBP but note that with risks to both growth and inflation tilted to the topside, this leaves a more challenging backdrop for an impending BoE cutting cycle.

As far as the Federal Reserve is concerned, markets are pricing in 65% chance of a Fed rate cut in September.

Bank of America expects a first Fed rate cut in December and commented; “The delay of the rate cutting cycle reflects the higher-than-expected inflation outturn in the first quarter. On a mark-to-market basis, and considering adverse base effects, the Fed is likely to see elevated year-on-year rates of core PCE inflation through the end of 2024.”

The dollar will tend to gain support if US rates stay at current levels, especially with risk appetite vulnerable.

BNY Mellon noted; “We think US growth in Q2 and beyond will become the main driver in FX.

The bank expects technology developments will be crucial in driving growth rates and currency markets.

It commented; “The narrative of money flowing into AI investments and tech to drive productivity and growth in the US over the rest of the developed markets stands out.”

It added; “the power of investments to drive growth and outperformance for a quarter or two looks normal in the context of market history.”

According to HSBC; “The USD is likely to remain strong over the coming months. While the GBP has been stronger than expected so far this year, supported by buoyant risk appetite and relatively high yields, it is likely to be on a path of gradual weakness over the coming months when the BoE starts cutting rates.”

The bank added; “It is not clear that the dynamics supporting the USD are set to change immediately, but US data remains key.”

In this context, the narrative is liable to change quickly if there is evidence of notable deterioration in the US economy.

NatWest Markets considers thar there could be a turn relatively quickly. It added; “Meanwhile in the US, the Federal Reserve might be feeling the pressure, with data and surveys in recent weeks pointing to additional weakness.”

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TAGS: Pound Dollar Forecasts