MUFG Pound to Dollar exchange rate forecast to Strengthen to 1.3250 by March 2025

August 4, 2024 - Written by David Woodsmith

STORY LINK MUFG Pound to Dollar exchange rate forecast to Strengthen to 1.3250 by March 2025

MUFG forecasts that the Pound to Dollar (GBP/USD) exchange rate will strengthen to 1.3250 in March 2025 and could see a peak of 1.3600.

Standard Chartered has a 3-month GBP/USD forecast of 1.30, but expects a retreat to 1.25 on a 12-month view as the dollar regains ground.

Volatility increased sharply during the week with major fundamental events and as well as a notable slide in risk appetite with sharp losses for equities led by a tech sell-off.

GBP/USD dipped to 4-week lows just above 1.2700 before a recovery to above 1.2800 after the US jobs data.

MUFG commented; “August brings with it lighter manned trading desks and holiday vacations which tends to mean lower trading volumes and potentially narrower trading ranges. However, if a risk event emerges during this period it can often lead to greater volatility in thinner than usual liquidity.”

The Bank of England cut interest rates by 25 basis points to 5.00% which met forecasts of most investment banks.

MUFG commented; “The decision of the BoE to cut in August was not fully priced but equally is not a big surprise and hence we see little reason for us to alter our view that the pound can strengthen further versus the US dollar. The Fed, ECB and most G10 central banks will be cutting through the remainder of the year and indeed the caution in the communication from the BoE at the August meeting points to risks of less easing from the BoE than elsewhere.

It added; “Political stability will also make for a welcome change and help provide further GBP support.”

The Federal Reserve held interest rates at 5.50%, but Chair Powell suggested that a rate cut was possible in September.

Importantly, US data was weaker than expected with a key manufacturing survey in contraction territory.

The Jobs report also recorded a weaker than expected increase in non-farm payrolls of 114,000 for July compared with expectations of 175,000 while the unemployment rate increased to 4.3% from 4.1% and the highest reading since November 2021.

ING commented; “We have long been in the camp expecting the Fed to be more responsive to a cooling economy, resulting in more rate cuts than both the Fed and the market were anticipating.”

Overall recession fears intensified and US yields moved lower which hurt the dollar.

Nevertheless, Credit Agricole commented; “Perhaps counter-intuitively, shockingly weak readings out of the US jobs report today could eventually lend the USD a stronger hand due to any safe-haven demand that would likely ensue from the more acute signals that a US recession could be around the corner.”

MUFG does not expect heavy dollar selling; “While a weakening US labour market and rate cuts will weigh on the dollar, global growth uncertainties and US political uncertainties will curtail the scale of dollar selling.”

According to Standard Chartered; “we believe the USD will be more rangebound with a bullish bias over 6-12 months once major centrals banks cut rates in lockstep.”

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TAGS: Pound Dollar Forecasts