Currency analysts at BNP Paribas forecast that the recent declines in the GBP/USD currency pair were merely a temporary correction. They predict that the pair will rise to 1.28 dollars by the end of 2024. This optimistic outlook is grounded in a comprehensive analysis of various market factors and geopolitical events. Despite the short-term bearish trends, the analysts believe that the overall trajectory for GBP/USD is upward. The primary reasons for this are anticipated political developments in the UK and the fundamental economic strength of the pound relative to the dollar. Moreover, the expectation of foreign capital inflows, spurred by upcoming elections, further supports their bullish stance.
The prediction of an increase to 1.28 dollars is based on several key assumptions and analyses. Firstly, the economic fundamentals of the UK are expected to improve. This includes a stable economic growth rate, controlled inflation, and a favorable balance of trade. Secondly, the analysts believe that the US dollar might experience relative weakness due to internal economic challenges and changing global trade dynamics. These factors combined provide a conducive environment for the pound to strengthen against the dollar. Additionally, the historical performance of GBP/USD during similar economic cycles has shown a tendency for the pound to recover and gain value after periods of decline.
Moreover, the upcoming elections in the UK are seen as a pivotal factor that could significantly influence the strength of the pound. Elections often bring a wave of uncertainty, but they also offer the potential for positive change. BNP Paribas analysts suggest that the potential for a new government with a clear mandate for fiscal prudence and economic growth could attract foreign investors. This influx of foreign capital would naturally strengthen the pound as demand for UK assets increases. The anticipation of a pro-growth, fiscally responsible administration is a key driver of this optimistic outlook.
The timing of interest rate decisions by the Bank of England (BoE) is another critical factor. This Thursday, June 20, the BoE will decide on interest rates. BNP Paribas analysts expect that the Bank will maintain the current interest rates. They anticipate a hawkish tone in the BoE’s communication, which implies a cautious but vigilant approach to monetary policy. This stance is expected to provide a sense of stability and predictability to the markets, which could support the pound. The expectation is that the BoE will signal its readiness to cut rates in August by 25 basis points, which could be seen as a pre-emptive measure to stimulate the economy if needed.
The analysts emphasize that the BoE’s decision will be closely watched by the markets. A decision to maintain current rates, coupled with a hawkish tone, would likely instill confidence among investors. This confidence could lead to an appreciation of the pound, as it signals that the BoE is in control and ready to act in the best interest of the economy. The anticipation of a rate cut in August would also indicate that the BoE is proactive and responsive to economic conditions, which is seen as a positive signal by the markets.
Experts also highlight the potential impact of the UK parliamentary elections on the pound. They argue that the elections could lead to a government focused on fiscal prudence and growth-oriented policies. Such a government would likely prioritize economic stability and growth, which would be favorable for the pound. The Labour Party, which is expected to form the next government, has indicated its commitment to such policies. This expectation has already started to influence market sentiments positively. Investors are looking forward to a stable and growth-oriented administration that could bring about economic reforms and stability.
The broader upward trend in the GBP/USD currency pair is seen as a correction within a long-term growth pattern. The recent declines are viewed as temporary setbacks rather than a change in the overall direction. The potential to reach the 1.28 dollar resistance level in 2024 and 1.33 dollars in 2025 is based on a comprehensive analysis of market trends and economic indicators. The analysts believe that the fundamentals of the UK economy are strong enough to support this growth. They point to factors such as robust economic growth, controlled inflation, and a favorable trade balance as key drivers of this upward trend.
BNP Paribas analysts are confident in the gradual strengthening of the pound. They acknowledge that the process will be slow and marked by periodic setbacks, but they believe that the overall trend is upward. Their forecast for the end of 2024 is 1.28, with an increase to 1.33 by the end of 2025. This forecast is based on the expectation that the BoE will cut interest rates in August and then make two more cuts by the end of 2024. These rate cuts are expected to stimulate the economy and support the growth of the pound.
The analysts also caution that a stronger upward movement is unlikely unless there is a significant deterioration in the fundamentals of the US dollar. They expect the dollar to remain strong in the near term, supported by its status as a global reserve currency and the relative strength of the US economy. However, any major economic or geopolitical events that negatively impact the dollar could lead to a more significant appreciation of the pound. For now, the expectation is for a gradual and steady increase in the value of the pound against the dollar.
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18.06.2024
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