Pound to US Dollar Rate Forecast for Week Ahead: Fed, BoE Divergence Crucial

September 29, 2024 - Written by David Woodsmith

STORY LINK Pound to US Dollar Rate Forecast for Week Ahead: Fed, BoE Divergence Crucial

Goldman Sachs forecasts that the Pound to Dollar (GBP/USD) exchange rate will strengthen to 1.40 on a 12-month view.

In contrast, Wells Fargo expects GBP/USD will weaken to 1.28 at the end of 2024.

The dollar remained on the defensive during the week with GBP/USD advancing to 31-month highs around 1.3430.

Goldman Sachs maintains a positive stance on the Pound; “At the current juncture, support for Sterling is coming both from its risk beta as well as solid growth momentum and a patient Bank of England.

It also sees a dual Pound benefit from Fed policies.

It added; “The Fed began easing this week into relatively robust US growth. And as a result, markets have priced out US recession risk, benefiting risky assets and pro-cyclical currencies like Sterling.”

Wells Fargo is broadly negative on the Pound, but a key element is that it expects a dollar rebound next year.

According to the bank; “We expect the U.S. dollar to be pushed and pulled in different directions through the end of this year; however, we have become more confident in the longer-term prospects of the greenback.”

A key argument for Wells Fargo is that the Federal Reserve will front load interest rate cuts with aggressive short-term cuts, leaving little room for cuts next year.

In this context, the bank argues; “With the Fed getting the heavy lifting on rate cuts out of the way early, interest rate differentials may favor the dollar as 2025 progresses. Also, we forecast U.S. economic growth to pick up again starting from during H1-2025, which should also support the dollar over the longer term.”

Wells Fargo also expects rate cuts outside the US will spur dollar demand.

Bank of America expects that the Bank of England will maintain a cautious stance which will support the Pound; “Given that the progress in domestic inflation is still tentative, we don’t think the evidence is there to deviate from the cautious path that the BoE has laid out.

It expects one further BoE rate cut this year in November.

ING expects near-term GBP/USD strength before sentiment turns; “the fresh 1.34+ highs are also justified by the policy rate differential, although expectations for a 50bp Fed cut may be misplaced, and GBP/USD may start to look expensive soon.”

HSBC is not convinced that the dollar will weaken further; “On fundamentals, the USD remains attractive. With a punchy easing path priced into year-end, USD bears need the labour data to get much worse, and soon. US election risks may also deter USD sellers.”

It also sees little merit in dollar alternatives; “While the start of the Fed’s easing cycle might imply a weaker USD ahead, other currencies in G10 may face greater headwinds.”

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TAGS: Pound Dollar Forecasts