The pound will rise to its highest level against the US Dollar in over two years due to the optimism surrounding the UK economy, and the greater political stability of the UK compared to Europe and America.
Amundi, an asset manager in France with £1.8 trillion of assets under management, believes that the sterling could reach $1.35 at the end this year. It is currently just below $1.30. This would be a 7 per cent increase in the dollar’s value since the beginning of the year.
Andreas Koenig is the head of global FX for Amundi. He said that the improvement in the economy and the relatively stable government are two reasons why sterling might be more attractive.
Analysts are more optimistic than ever about the performance of the pound against other major currencies, due to the UK’s economy exceeding expectations and the increased political stability after Labour’s overwhelming victory in the recent general election.
Fixed income assets denominated in sterling are also expected to be attractive as the Bank of England is expected to lower interest rates from 5.25 percent for the remainder of the year.
The Bank of England has maintained its 2 percent target for inflation in the consumer price index over the past two month, but services inflation remains high at 5.7%. Investors believe that the Bank of England is likely to reduce rates two times this year starting in September.
Citibank, an investment bank in the US, believes that the pound’s value will continue to rise against the dollar, with a $1.41 average by 2028. Analysts at Citibank said that the pace of the pound’s strengthening against the Euro will be slower. The pound has gained about 3% against the euro this year.
Bank of America, a Wall Street investment firm, said that it was also “bullish” about the future performance of the pound against the dollar.
Goldman Sachs analysts said last week in a client note that they had “highlighted sterling’s attractiveness in comparison to other “risky” currencies”, due to the UK having a “less uncertain political future than the Euro area” and a lower exposure to China’s economic downturn.
The economists added: “Although we still expect the Bank of England’s to start cutting rates in August, following further signs of a softening of underlying inflation and wage increases, this is unlikely to penalise sterling too much due to the likely shift by the Fed to cut rates as well in September.”
According to a survey by major companies , US investor confidence has stabilized in the UK after two years with sharp drops.
According to the annual Transatlantic Confidence Index, published by BritishAmerican Business (a trade association) and Bain & Company (a consulting firm), the confidence level has declined over the past two years due to multiple changes in prime ministers and the impact of Brexit.
The US Investors’ Confidence in the UK is Stable, according to the poll conducted this year in April and may. They have pledged to increase or maintain investment in the UK.
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