On June 23, 2024, according to a report by Frank Davies, Danske Bank predicts that the Pound to Dollar (GBP/USD) exchange rate will weaken to 1.18 over the next 12 months. However, Bank of America has a more optimistic outlook, forecasting gains to 1.33 by the end of 2024.
During the week, GBP/USD saw a decline to 5-week lows near 1.2620 as European currencies faced challenges and the Bank of England hinted at a potential interest rate cut. The Bank of England decided to keep interest rates at 5.25%, with a 7-2 vote where Dhingra and Ramsden voted in favor of a 25 basis point rate cut to 5.00%.
There was a division among the majority that voted for unchanged rates, indicating concerns over inflation trends. Some members were more confident in deflation trends and viewed the decision as finely balanced. ING interpreted the minutes as bearish for the pound, raising expectations of dovish elements from the Bank of England post the general election on July 4.
Rabobank suggested that the central bank is preparing for a rate cut in August, based on recent data. Governor Bailey did not provide further insights post the meeting due to pre-election restrictions. Danske Bank anticipates easing inflationary pressures leading to a rate cut in August, while ING expects sterling weakness in the coming months, particularly against the USD.
Medium-term fiscal trends in the UK also raised concerns, with the budget deficit increasing in the first two months of fiscal 2024/25. Despite the outcome of the election, fiscal policy is expected to remain constrained. The latest US data showed mixed results, with weaker retail sales offset by stronger PMI business confidence.
Nordea believes that it will take time for the Fed to cut rates, despite expectations of lower inflation. Danske Bank anticipates Fed rate cuts but expects weaker risk appetite to impact the Pound negatively.