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Optimistic outlook for the Pound: Analysts bullish on GBP/USD


Optimistic outlook for the Pound

Despite encountering various difficulties, the British economy has managed to maintain the strength of the pound sterling, buoying optimistic expectations for its future trajectory. Analysts from both Bank of America and Credit Agricole hold a steadfast belief that the GBP/USD exchange rate is poised to continue its ascent over the forthcoming months.


Central to their assertions are the signs of economic revitalization observed across the British Isles and a inflationary rate surpassing initial forecasts. These factors underpin the argument for sustaining interest rates at elevated levels.


Despite a recent spell of vulnerability, investors are once again demonstrating confidence in the currency's growth potential, indicating a heightened inclination towards investing in the pound.



Analysts from Bank of America and Credit Agricole SA are in unanimous agreement regarding the prospective strength of the pound in the imminent months. They draw attention to the ongoing economic resurgence and an inflation rate that exceeds earlier projections, bolstering the case for maintaining interest rates at elevated levels.


Echoing this sentiment is Andrew Bailey, the Governor of the Bank of England (BoE), who, in his latest address, staunchly defended the retention of high interest rates for an extended period.


Consequently, the market has factored in a modest reduction of approximately 75 basis points in monetary policy easing by the Bank of England this year, roughly translating to approximately three quarter-point interest rate reductions.



This stands in stark contrast to the more aggressive anticipations regarding interest rate cuts by the European Central Bank and the Federal Reserve in 2024, projected at 120 and 110 basis points, respectively.


Despite a recent deviation from its upward trajectory, evidenced by the GBP/USD exchange rate revisiting the consolidation zone between 1.24 and 1.2650, analysts from Bank of America anticipate a swift departure from this zone, with an anticipated recovery of the previously lost upward trend.


Collectively, these indicators suggest the potential for a soft economic landing, mitigating the necessity for the BOE to hastily implement interest rate cuts. Market projections indicate that the BOE will likely commence rate reductions from August onwards, considerably later than the ECB or the Fed.



Furthermore, should economic activity data remain robust and inflationary pressures alleviate, the pound stands to strengthen against both the euro and the dollar, as highlighted by Mark Nash, the head of fixed income alternative instruments at Jupiter Asset Management.


Monetary markets forecast that the BOE will only enact rate cuts from August, in contrast to the ECB's expected timeline in June, as outlined in the latest prognostications by Bank of America analysts.


gbpusd analysis, forex trading
GBP/USD, daily chart, MetaTrader, 19.02.2024

19.02.2024



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