Pound to Dollar December Forecast: Trump Trade but Upside Still Expected

December 1, 2024 - Written by James Fuller

STORY LINK Pound to Dollar December Forecast: Trump Trade but Upside Still Expected

After an initial retreat to below 1.25, Bank of America (BoA) expects the Pound to Dollar exchange rate (GBP/USD) to strengthen to 1.38 at the end of 2025 with a further surge to 1.49 at the end of 2026.

ING, however, expects dollar strength to dominate and has a 12-month GBP/USD forecast of 1.24.

After posting gains for 8 successive weeks, the dollar succumbed to profit taking during the week.

In this context, position adjustment ahead of the Thanksgiving Holiday was a key factor.

Seasonal factors could play a significant short-term role.

Danske notes the risk of near-term dollar losses; “December has historically been the most bearish month for the broad USD, with an average monthly decline of 0.8%.”

There were no major US data releases during the week, but policy expectations surrounding a Trump Administration remained a key talking point.

Trump threatened to impose tariffs of 25% on imports from Mexico and Canada on day one of the new Administration which rattled markets.

According to ING; “Investors and corporate treasurers think they know what Donald Trump will mean for the dollar, having seen this film before in 2018-2019. European FX in particular looks the most vulnerable.”

Nordea expects upward pressure on yields; “We think strong economic activity and inflation above 2% inflation combined with an increasing budget deficit could move the US 10-year government rate back up toward 5% from its current level at 4.40%.”

The bank added; “It is hard to know how much the currency will offset the next iteration of tariffs, but we think that it could lead to a substantial appreciation of the dollar. This makes us more comfortable with our bullish dollar forecast.”

It sees a risk of GBP/USD trading below 1.20 next year.

Rhetoric from Bank of England officials maintained expectations of a very cautious stance and only slow interest rate cuts.

BoA expects the dollar will fail to hold initial gains and is bullish on the Pound.

On Sterling, it commented; “Heading into the new year, we have made some adjustments to our GBP profile to highlight our conviction that further upside is likely over the medium-term.”

As far as the dollar is concerned it noted; “Our baseline assumes that the USD will remain strong in the first half of next year, on the back of US tariffs, resilient US economy, and Fed stopping rate cuts early.”

The bank, however, expects that the dollar will retreat later in the year. It added; “This assumes that the US economy eventually resumes its landing, with some of the negative implications of trade protectionism also taking hold.”

HSBC maintains a bullish medium-term dollar stance; “In our opinion, the case for USD strength through 2025 is robust. It is based on expectations of fiscal stimulus and heightened import tariffs that together may slow the pace of Fed easing and keep interest rates elevated.

It added; “If the rest of the world is still languishing, at least in relative terms, then the USD is likely to remain strong.”

HSBC is, however, cautious over near-term trends; “Despite our belief in a strong USD through next year, we are a little wary of just how quickly it has strengthened.”

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TAGS: Currency Predictions Pound Dollar Forecasts