Introduction to Pound Sterling and Dollar Forecast
The Pound to Dollar exchange rate, also known as GBP/USD, has been experiencing fluctuations in recent times. Despite the renewed strength of the Sterling, the exchange rate remains capped. Analysts from RBC Capital Markets and Standard Chartered have forecasted that the Pound to Dollar exchange rate will peak just below 1.40 and 1.37, respectively, in the next 12 months.
GBP/USD Forecasts: Fundamental Troubles for Both
RBC Capital Markets expects the Pound to Dollar exchange rate to peak just below 1.40, despite being negative on the dollar outlook. Standard Chartered, on the other hand, expects the 12-month GBP/USD gains to be held to 1.37. The GBP/USD exchange rate had dipped to 2-week lows just below the 1.3400 level before recovering strongly to above 1.35 after Fed Chair Jerome Powell’s dovish Jackson Hole speech.
Factors Affecting the Exchange Rate
The US labor market has been experiencing downside risks, with weak hiring momentum posing upside risks to the unemployment rate. This has triggered a fresh surge in expectations surrounding a September US interest rate cut. ANZ expects a near-term rate cut, citing the need for easing in September and a gradual easing cycle. The attacks on the central bank by the Administration have also cast uncertainty over the US Dollar outlook, with President Trump calling for the resignation of Fed Governor Cook over allegations of financial misconduct.
Market Reactions and Analyst Views
ING commented on the renewed threat from President Trump to fire Fed Governor Lisa Cook, stating that it is another ingredient to consider in the Trump quest to morph the Fed dovish. MUFG added that President Trump’s post calling for another Fed official to resign highlights the continued political pressure on the Fed to cut rates, posing bigger downside risks for the USD next year. RBC maintains a bearish dollar stance, expecting foreign managers to hedge their USD assets more aggressively, which will exert sustained downward pressure on the dollar in 2025 and throughout 2026.
UK Economic Situation
The UK inflation rate edged higher to 3.8% for July from 3.6% previously, with the core rate also at 3.8%. The PMI data was mixed, but the services-sector index hit a 12-month high. There was also a lower-than-expected government borrowing requirement for July. However, RBC remains bearish on the Pound due to underlying fundamental vulnerability, citing risks to the sterling outlook in the medium-term, including lingering fears that the UK labor market is continuing to weaken.
Conclusion
In conclusion, the Pound to Dollar exchange rate is expected to peak just below 1.40 and 1.37 in the next 12 months, according to RBC Capital Markets and Standard Chartered, respectively. The exchange rate has been experiencing fluctuations due to various factors, including the US labor market, attacks on the central bank, and the UK economic situation. As the situation continues to evolve, it is essential to keep a close eye on the exchange rate and its forecasts to make informed decisions.
