Pound to Dollar 2024-2025 Forecast: GBP/USD Exchange Rate to Gain to 1.35 Next Year

July 14, 2024 - Written by David Woodsmith

STORY LINK Pound to Dollar 2024-2025 Forecast: GBP/USD Exchange Rate to Gain to 1.35 Next Year

BNP Paribas expects the Pound to Dollar (GBP/USD) exchange rate to struggle in the short term, but expects gains to 1.35 at the end of next year.

RBC Capital Markets, however, expects a steady retreat to 1.23 at the end of this year with further losses to 1.19 at the end of 2025.

Pound sentiment has remained firm during the week while the dollar has come under pressure.

UK GDP data for May was stronger than expected with 0.4% growth after no change for April.

Bank of England chief economist Pill also cast doubt on the potential for a near-term cut in interest rates.

According to Credit Agricole; “We have already noticed that foreign inflows into the UK stock market ETFs have been on the rise in recent weeks. More recently, less dovish BoE comments as well as better-than-expected UK economic data have further boosted the GBP’s relative rate appeal.”

BNP added; “The UK election outcome of a sizeable Labour majority seems positive for the GBP as it ushers in a period of political stability. We'll also be watching the scope for UK-EU relations to improve under a Labour government as well as the possibility for growth-positive reforms and spending policies.”

RBC still considers that downside risks prevail; “GBP faces more asymmetric risk to the downside than to the upside. Namely, this is down to the constrained fiscal backdrop not leaving much space for flexibility, and any deterioration in fiscal policy credibility would leave GBP vulnerable.”

The latest US inflation data was weaker than expected with the headline rate declining to 3.0% from 3.3% and below consensus forecasts of 3.1% while the core rate edged lower to 3.3% from 3.4% after a 0.1% monthly increase and this was the lowest annual increase since May 2021.

The data triggered renewed expectations of a near-term Federal Reserve rate cut

According to ING; “Inflation data supports the argument that the Federal Reserve can start loosening monetary policy this quarter. Markets will monitor Fed speakers closely after the encouraging June CPI report, but it is possible the Fed may want to wait until Jackson Hole in August for a more formal shift in communication.

Danske Bank added; “With the labour market also cooling, the Fed should now be very close to have sufficient confidence to start easing. The meeting on 31 July cannot be ruled out but we believe they will instead choose to provide strong guidance for a September cut.”

RBC commented; “The biggest downside risk remains a US recession which is still a tail risk rather than base case scenario.”

Political factors will have an increasingly important impact on markets.

President Biden remains under pressure to drop out of the Democrat race which is an important element of uncertainty.

Traders will also continue to debate the implications of a Trump victory in November.

According to BNPP; “The USD remains well supported, which we expect to continue as the US presidential election in November gets closer.

The bank expects the dollar will lose ground during 2025.

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TAGS: Pound Dollar Forecasts