The GBP/USD currency pair recently reached a significant milestone, hitting a two-and-a-half-year high of $1.32 on August 27, 2024. Analysts are optimistic that this strong upward momentum will persist through the end of the year, positioning the pound sterling as one of the top-performing global currencies.
Britain’s robust economic growth, bolstered by the election of a new Labour government in July, has renewed confidence among foreign investors. According to leading US investment banks, this political stability is a key factor driving the pound’s strength.
Bank of America currency strategists forecast that the pound could reach $1.41 against the dollar by the end of 2025, marking a four-year high. Additionally, they expect the pound to climb to $1.35 by the end of this year, which would represent a two-year high.
The GBP/USD pair has already seen a 3.19% increase this year, with a 2.56% gain over the past three months. Kyle Chapman, an FX markets analyst at Ballinger Group, attributes this surge to several factors, including the Bank of England’s consistently hawkish stance, the UK’s more stable political landscape, and a growing economic edge over the eurozone.
The Bank of England’s measured approach to interest rate cuts, compared to the more aggressive reductions by the US Federal Reserve and the European Central Bank, has made the UK more attractive to foreign investors, further boosting the pound.
Looking ahead, the UK’s fiscal policy, particularly the first Labour budget scheduled for October 30, 2024, is expected to play a crucial role in maintaining the pound’s strength. If the government can effectively implement its fiscal measures, UK assets could see continued support from investors.
Moreover, the private sector’s solid performance has also contributed to the pound’s rise. Analysts from Goldman Sachs suggest that strong economic data will help dispel negative perceptions of the UK, keeping the Bank of England’s outlook on par with other major central banks.
