British Pound's Surge: Analyzing Factors and Future Outlook
The British pound has recently reached levels unseen since January 2022 against the U.S. dollar, prompting debate among market analysts about the currency's future. While some believe the pound's strength is genuine, others attribute it primarily to a weakening dollar. Sterling has appreciated nearly 10% against the dollar this year, while it has slightly depreciated against the euro.
Dollar Weakness or Pound Strength?
Janet Mui of RBC Brewin Dolphin suggests dollar weakness is the primary driver, fueled by concerns over U.S. economic policies. Paul Jackson from Invesco views the pound's rise as a recovery from the lows following the 'mini-budget' crisis under Liz Truss. He anticipates further dollar weakening and euro strengthening, forecasting GBP/USD at 1.40 and GBP/EUR at 1.15 in 12 months.
The Outlook for Sterling
Mui remains cautious about the pound's near-term prospects, citing softer UK economic momentum and potential Bank of England rate cuts. However, she notes that improved relations with the EU could provide a boost. Brian Mangwiro of Barings holds a bearish outlook, forecasting EUR/GBP at 0.875 and GBP/USD at 1.30 in six months, citing slowing UK economic growth and inflation. He believes de-dollarization risks are overblown. Jackie Bowie of Chatham Financial EMEA points to mixed fundamentals, acknowledging potential support from government spending and monetary policy, but also highlighting geopolitical risks.
