The pound is expected to become one of the top-performing major currencies in 2024, according to leading American investment banks. Analysts predict that sterling will reach a four-year high of $1.41 against the dollar by the end of next year, driven by strong economic growth in Britain and a government change that is helping to improve perceptions of the UK economy. Bank of America currency strategists forecast a rise to a two-year high of $1.35 for the pound by the end of 2024.
So far this year, sterling has increased by 3.5% against the dollar, reaching its highest level since March 2022. This upward trend is attributed to traders anticipating interest rate cuts in the United States while expecting a more measured approach to monetary easing from the Bank of England. Currently, the pound stands at 1.31, having rebounded significantly following Liz Truss’s mini-budget in September 2022.
Goldman Sachs analysts believe that sterling’s gains are likely to persist, citing favorable interest rate conditions and positive economic growth projections for the upcoming year. The upcoming Labour budget on 30 October could further enhance UK asset values if the government demonstrates fiscal credibility. Recent private sector surveys indicate that the UK’s solid growth momentum can be maintained, helping to counteract negative perceptions of the British economy.
Traders are betting on multiple interest rate cuts from the US Federal Reserve and the European Central Bank this month, while the Bank of England is expected to keep its base rate at 5% after a reduction in August. This divergence in monetary policy is aiding the pound’s strength against other major currencies. Bank of America also predicts the pound will gain against the euro, having already reached a two-year high of €1.18 this month. Goldman Sachs advises investors to consider betting on sterling’s rise against the Swiss franc as well.
George Buckley, chief European economist at Nomura, points out that the UK economy does not face the same labor market issues as the US or the sluggish growth of the eurozone. This economic outperformance is contributing to a positive outlook for the pound for the rest of the year and into 2025. As global investors reassess their views on the UK economy, sterling is poised to emerge as a standout performer in the currency markets, potentially reaching levels not seen in several years.
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