GBP 2024 Forecasts

The British Pound outperformed other major currencies for the majority of 2023, holding this position until August. During that month, it became evident that the pace of inflation would ease, eliminating the necessity for the Bank of England to implement interest rate hikes as aggressively as initially implied by money markets, which had suggested rates could go as high as 6.5%.

The deceleration of inflation in the UK has materialized, reaching its culmination in the December release, which highlighted a notable slowdown in November.

Rate-cut expectations have surged in the markets, causing the Pound to become the second-worst performer in the G10 when examined in December. However, it's important to note that the UK currency still holds the position of the second-best performer in the G10 for the entirety of 2023.

In the realm of currencies, 2024 is poised to revolve around the precise timing and extent of central bank rate cuts. If the Bank of England opts to cut rates ahead of its significant counterparts, the Pound may face challenges. Conversely, if the rate cut occurs later, there is potential for UK yields to outperform, leading to a potential appreciation in the value of the Pound.

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Natwest

NatWest anticipates a gradual appreciation of the British Pound against both the Euro and the Dollar, persisting until approximately the third quarter of 2024. However, the forecast suggests a retracement of gains towards the end of the year as the Bank of England implements interest rate cuts.

In a year-ahead analysis by NatWest, it is projected that the key driver of GBP strength, especially in the first half of the year, will be the attractiveness of UK bond yields.

Economists at NatWest anticipate that the UK will maintain one of the highest nominal policy rates among G10 nations for a significant portion of the coming year.

According to Paul Robson, Head of FX Strategy for EMEA at NatWest Markets, "Yield differentials are set to move in favour of Sterling,".

Forecasts: Pound to Dollar exchange rate is as follows: 1.24 by the end of March, 1.27 by the end of June, 1.31 by the end of September, and 1.30 by the end of the year.

The Euro to Pound rate is seen at 0.87, 0.85, 0.87 and 0.88 at these time points, giving a Pound to Euro profile of 1.15, 1.18, 1.15 and 1.14.

ANZ

ANZ's foreign exchange analysts caution against underestimating the Pound in 2024, "though the growth outlook remains challenging, recent data suggest the economy may be turning a corner."

"Signs of resilience and the easing of inflationary pressures point to a robust GBP in 2024," says ANZ.

ANZ forecasts the Euro-Pound exchange rate at 0.85 by the end of March and 0.86 through to the end of 2024. The inverse of this is 1.18 and 1.16.

Meanwhile, the Pound-Dollar is anticipated to climb to 1.34 by the end of the next year.

Goldman Sachs

Goldman Sachs analysts have revised their predictions for the Pound-Dollar exchange rate upward, primarily driven by expectations of a weaker dollar.

In light of recent lower-than-expected U.S. inflation figures and the outcome of last week's Federal Reserve Open Market Committee meeting, economists at Goldman Sachs have made a noteworthy adjustment to their Federal Reserve forecast.

They anticipate the Federal Reserve implementing five interest rate cuts next year, a notable shift from the initial 2024 Outlook publication that only projected one cut.

Goldman Sachs has adjusted its projections for the Pound to Dollar exchange rate, forecasting it to be at 1.28 in three months—an upgrade from the previous estimate of 1.25. The six-month outlook remains at 1.30, and the 12-month target has been raised to 1.35 from the earlier projection of 1.30.

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Morgan Stanley

Foreign exchange strategists at Morgan Stanley, an investment bank, assert that they hold the most negative stance on Pound Sterling within the G10 space for the year 2024.

This pessimism materializes in a somber year-ahead forecast, envisioning the Pound descending to levels reminiscent of the crisis era against the Dollar.

Matthew Hornbach, a strategist at Morgan Stanley, states, "We are cautious on EUR and EMFX, and most negative on GBP,".

As per Hornbach, Pound Sterling primarily gained from its high carry in 2023, attributed to elevated UK bond yields as investors anticipated substantially higher Bank of England interest rates.

However, he anticipates the Bank to implement rate cuts at a quicker and more aggressive pace than what is currently reflected in financial markets.

Morgan Stanley predicts that the Pound-Dollar exchange rate will decline to 1.14 by mid-2024, preceding a further drop to 1.15 by the end of the year.

Deutsche Bank

According to Deutsche Bank, the British Pound is expected to decline to levels last witnessed against the Euro during the crisis triggered by former Prime Minister Liz Truss when she introduced her controversial budget in September 2022.

Deutsche Bank analyst George Saravelos states, "the timing and speed of the adjustment from hiking to cutting for individual central banks will be a dominant influence for each currency in 2024."

In this regard, the Pound is anticipated to face consequences from the Bank of England, which Deutsche Bank expects to reduce the Bank Rate in May. This is expected to precede actions by the U.S. Federal Reserve and the European Central Bank, both of which are projected to cut rates in mid-year.

"For EURGBP meanwhile, we think a move north of 0.90 is likely, and fair value in the cross will continue to drift higher as long as UK inflation remains stickier," says Saravelos.

The Euro to Pound exchange rate is forecast to jump to 0.90 by mid-year 2024, ahead of 0.92 by year-end. The inverse of this gives a Pound to Euro exchange rate of 1.11 and 1.0870.

Amundi Investment Institute

Amundi, Europe's largest asset manager, predicts that the Pound-Dollar will decline by more than 4% to 1.21 as inflation slows down and the economy experiences the impact of policy tightening.

"We expect the pound to fall apart," says Federico Cesarini, Head of Developed FX at Amundi Investment Institute.

This anticipation is grounded in Amundi's forecast that the Bank of England will reduce rates by 125 basis points in the coming year. However, with markets already factoring in approximately 150 basis points, it appears that this prediction relies significantly on the strength of the USD.

TD Securities

TD Securities anticipates the initial rate reduction from the Bank of England in May, while the Federal Reserve and the European Central Bank are projected to implement cuts in June.

If the Bank of England takes the lead in the rate-cutting cycle, Pound Sterling is likely to face pressure, as this implies that UK bond yields will decline more rapidly compared to those of the Eurozone and the U.S.

"Growth expectations for the UK are starting to correct lower and a lot of the good news that had been priced into GBP has started to recede," says TD Securities.

TD Securities analysts project the Pound to Dollar exchange rate to be at 1.22 by the end of the first quarter of 2021, down from the 1.26 level noted at the time of publication. A forecast of 1.24 is anticipated by the end of the second quarter, followed by 1.26 at the end of the third quarter, and 1.28 by the close of 2024.

Regarding the Euro to Pound exchange rate, a target of 0.89 is projected from the end of Q1 through the end of Q2, and a forecast of 0.88 is envisaged for the end of both Q3 and Q4. Consequently, this yields a Pound to Euro exchange rate inverse forecast profile of 1.12 and 1.14, both below the current spot levels at 1.1760.