Pound to Dollar Rate Forecast for Next Week: 1.33 but 2024 Predictions see Higher

September 22, 2024 - Written by John Cameron

STORY LINK Pound to Dollar Rate Forecast for Next Week: 1.33 but 2024 Predictions see Higher

Foreign exchange analysts at HSBC are forecasting GBP/USD to weaken to 1.25 by September 2025.

Structural and cyclical developments will be crucial for the GBP/USD performance.

Interest rate decisions have dominated markets during the week and GBP/USD hit 30-month highs above 1.33.

The Federal Reserve cut interest rates by 50 basis points to 5.00% at its policy meeting. Ahead of the decision, markets priced in around a 60% chance of this move and around 40% of a smaller 25 basis-point cut.

Chair Powell justified the larger move with comments that risk to the inflation and employment mandates were now balanced.

The Fed committee projections also indicated that rates would be cut further before the end of 2024 and the stance was generally dovish.

Socgen considers that dollar vulnerability has increased; “cracks are now appearing in the case for US exceptionalism, exacerbated by an aggressive Federal Reserve and strong positioning in US assets.”

In contrast, HSBC sees scope for the dollar to recover; “the baseline scenario calls for modest Fed easing, which has not been definitively USD-negative in the past, while more sizeable rate cuts on the back of rising recessionary concerns would likely play to the USD’s advantage.”

HSBC summarised; “We are not breaking up with our strong USD view. The building blocks remain in place for it to recover.”

In contrast, the Bank of England (BoE) held interest rates at 5.00% at the policy meeting, in line with market expectations.

The BoE considered that a steady approach was needed in cutting interest rates.

The Fed rate cut undermined the dollar while the contrasting policy approach has underpinned the Pound in global markets.

A key question is whether this contrast will be sustained.

MUFG commented; “The BoE’s more hawkish policy announcement today will create some near-term uncertainty over the prospect of back-to-back cuts at the final two meetings of the year.”

The bank does expect that the narrative will change, especially with fiscal risks.

According to the bank; “we see some danger here of the current GBP outperformance starting to fade as the BoE softens the messaging on gradualism and indicates that conditions are falling into place for the potential of faster rate cuts ahead.

MUFG added; “Carry is also turning less favourable as a trading strategy which we expect to continue and that will likely weigh on GBP performance further ahead.”

ING expects an eventual shift, but added; “That may take some time, however, and in the meantime, sterling can continue to do well.

Structural elements will also be extremely important over the medium term.

Bank of America (BoA) sees robust underlying Pound demand and added; “GBP is over 10% undervalued versus USD and supports our underlying bullish view on the pound and further gains over the medium-term following the recent range-break.”

HSBC, however, is also sceptical that the Pound will maintain its bullish stance; “GBP bulls need two things to hold true. Risk appetite needs to remain resilient, and the BoE cannot begin to out-dove the market. Neither seems an especially compelling assumption, even if they are holding true so far.”

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TAGS: Pound Dollar Forecasts