Key Insights
- Major investment banks, including Goldman Sachs and UBS, predict further gains for the British pound despite potential BoE interest rate cuts.
- Sterling’s strength is attributed to increased political stability following Labour’s election victory and expectations of improved UK-EU relations.
LONDON (MarketsXplora) – The British pound, already one of the best-performing major currencies this year, is poised for further gains despite the prospect of imminent interest rate cuts by the Bank of England (BoE), according to analyses from several leading investment banks.
Goldman Sachs analysts have expressed optimism about sterling, placing it at the top of their G-10 currency list. They maintain a bullish stance on the pound against the dollar, targeting 1.31. As of Wednesday morning, the pound was trading near 1.28 against the greenback.
UBS echoed this positive sentiment, suggesting that the UK’s political landscape has dramatically shifted following the Labour Party’s decisive victory in early June. Analysts noted that the combination of political stability and high interest rates could attract capital inflows to sterling, reversing years of structural selling pressure.
Rabobank’s Head of FX Strategy, Jane Foley, predicted continued upward momentum for the pound, citing expectations of recovering investment growth and market-friendly policies from the new Labour government under Keir Starmer’s leadership.
This optimistic outlook marks a stark contrast to the currency’s turbulent period in September 2022, when it nearly reached parity with the dollar following an ill-received fiscal announcement by then-Prime Minister Liz Truss’s government.
However, the pound’s strength comes despite market expectations of a potential BoE interest rate cut in August. As of Wednesday morning, traders were pricing in a 60% probability of a rate reduction at the central bank’s August 1 meeting.
Some analysts, including ING’s James Smith, have cautioned that the start of the BoE’s easing cycle could present headwinds for sterling. Matthew Ryan of Ebury warned that an immediate rate cut would likely trigger some downside for the currency.
The BoE’s decision remains finely balanced, with particular attention on services inflation, which remained at 5.7% in July’s print, above the central bank’s 5.1% forecast. This metric is closely watched by policymakers as an indicator of price pressures.
BoE Chief Economist Huw Pill recently struck a cautious tone, noting upside risks to inflation persistence, while still leaving the door open for potential rate cuts in the absence of new economic shocks.
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