The pound is predicted to remain strong amongst major global currencies, with Bank of America forecasting a rise to $1.41 by the end of 2025.
This optimistic outlook is driven by anticipations of sustained economic growth in the UK and a conservative approach to interest rate adjustments by the Bank of England.
Projected Growth and Market Performance
According to Bank of America, the pound is on track to be one of this year’s most robust major currencies. This forecast is supported by expectations of above-trend growth in the UK economy and a more measured pace in cutting interest rates.
Wall Street’s financial institution anticipates that the pound will reach $1.41 by the end of 2025, following its impressive performance last Tuesday when it peaked at $1.323—a 29-month high. Currently, the sterling stands at approximately $1.314 as of Monday morning.
Interest Rate Comparisons
The pound has experienced a 3.2 per cent increase against the dollar this year. This rise has been largely propelled by market speculation favouring a more conservative stance on interest rate cuts by the Bank of England, contrasting significantly with the US Federal Reserve.
Market consensus suggests both the Fed and the European Central Bank (ECB) are expected to lower borrowing costs soon. Meanwhile, the Bank of England is likely to keep its base rate steady at five per cent during its upcoming meeting on 19 September.
Economic Indicators and Predictions
Contrarily, the US economy has shown signs of slowing down.
Notably, recent job data has highlighted concerning increases in unemployment rates.
Bank of America predicts that the pound could reach $1.35 by the end of the year, influenced by a potentially tight UK labour market. Such conditions could pressurise policymakers to ease monetary policies cautiously.
Rate Cut Expectations
Investors are currently considering the possibility of at least three rate reductions by the Fed and two by the ECB before year-end. In contrast, the Bank of England is only expected to make a single cut.
The next anticipated rate cut by the Bank of England is scheduled for November. This would be followed by four quarterly reductions in 2025 and two more in 2026, with the aim of reaching a base rate of 3.25 per cent by mid-2026.
Performance Against the Euro
Additionally, Bank of America forecasts that the pound will exhibit continued strength against the euro. Sterling had already reached a two-year high against the euro in July.
To date, the pound has gained almost three per cent against the euro this year, bolstered by a solid performance amid fluctuating market conditions.
This trend signals a resilient outlook for the British currency in the broader European financial landscape.
Market Reactions and Investor Sentiments
Analysts suggest that the pound’s upward trend is a favourable indicator for investors. A robust currency often reflects a healthy economic forecast.
The financial community is closely observing these developments, anticipating further guidance from the Bank of England’s policy decisions moving forward.
Conclusion
With expectations of sustained economic growth and conservative interest rate adjustments, the pound is poised to strengthen further.
Market analysts will be keenly watching the Bank of England’s next moves, which will be pivotal in maintaining this upward trajectory.
The pound is forecasted to continue its robust performance against major currencies, driven by a healthier UK economy and a cautious approach to interest rate cuts.
Investors and analysts will closely monitor upcoming economic indicators and central bank meetings, which are crucial for sustaining this positive trend.