Pound Sterling to Dollar Rate Outlook: 1.38 by End of 2025

July 28, 2024 - Written by David Woodsmith

STORY LINK Pound Sterling to Dollar Rate Outlook: 1.38 by End of 2025

Bank of America (BoA) forecasts that the Pound to Dollar (GBP/USD) exchange rate will strengthen to 1.38 at the end of 2025.

According to BoA dollar weakness will be a key element as other economies improve. It added; “slower US growth, even if still higher than in the rest of G10, will also contribute to USD weakness.”

ING, however, expects GBP/USD will be held at 1.25 at the end of this year and next year amid a weaker Pound.

GBP/USD retreated to 2-week lows at 1.2850 during the week. Initial vulnerability was triggered by a slide in risk appetite and, although equities recovered late in the week, the Pound was then hampered by stronger speculation over a Bank of England (BoE) rate cut.

The BoE and Federal Reserve will both announce the key interest rate decisions in the week ahead.

A majority of investment banks expect the BoE to cut interest rates, but many consider it an extremely close call and markets are pricing in only around a 50% chance of a cut.

There will, therefore, be scope for Pound losses if the central bank delivers a cut.

Allan Monks at J.P. Morgan commented; "We look for a 25 basis point rate cut at next week's meeting, although the call appears much closer than it did several weeks back. The case for lower rates is far from clear."

He added; "If rates are lowered in August, it looks likely to happen on a close 5-4 vote."

According to ING; “we expect a broad-based GBP weakening next week when the Bank of England will – in our view – cut rates. We think the BoE will judge the stickiness in services inflation as down primarily to one-off factors and may look at more “core” measures that instead point to a less worrying picture.”

The US Presidential race has taken another dramatic turn with President Biden announcing that he will not seek re-election and the Democrat Party moved quickly to endorse Vice-President Harris.

As far as policy is concerned, market attention is still focussed on a potential Trump victory.

According to Athanasios Vamvakidis, head of global forex research at Bank of America (BofA); "There is a growing consensus that the dollar will be stronger if Trump wins due to tax cuts and tariffs, but it’s more complicated than that as Trump doesn’t want a strong dollar."

Meanwhile, markets are now very confident that the Fed will cut rates in September and there has been some increased speculation of a move this week, especially with signs of a weaker economy.

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TAGS: Pound Dollar Forecasts