Last week (December 18-December 24), the pound against the U.S. dollar fluctuated greatly. Due to the decline of the U.S. dollar, the pound against the U.S. dollar rose to 1.2698 near 1.2700, a weekly increase of 0.18%.
Goldman Sachs said GBP/USD will rise to 1.35 by the end of 2024 as the Federal Reserve is expected to cut interest rates five times in 2024, which will weaken the dollar.
However, analysts at HSBC predict that the GBP/USD exchange rate will fall to 1.18 by the third quarter of 2024, as a stronger U.S. dollar will cause GBP/USD to fall.
British economic data released last week triggered a further shift in the Bank of England‘s interest rate expectations. Money market data shows that the Bank of England cut interest rates for the first time in May, and by the end of next year, British interest rates will fall below 4.00%.
Rabobank said, “The market appears to be quite accepting of the idea that the Bank of England will lag behind the European Central Bank and the Federal Reserve in cutting interest rates in 2024, and this argument will be under threat after the inflation data is released.”
Although UK retail sales data were stronger than expected, GDP figures for the second and third quarters were revised downwards, fueling talk of a technical recession.
BNP Paribas said, “We expect that as the economy slows, the UK will eventually enter a period of stagflation, with low growth ultimately driving a greater decline in price pressures.”
Morgan Stanley said, “Previously, it was believed that the risk of continued inflation in the UK was greater, which will continue to make the Bank of England relatively more cautious in cutting interest rates. There is now increasing evidence that inflation in the UK is also similar to The decline in the U.S. is as rapid as in the eurozone, but with a lag.”
Will Fed rate hike weaken dollar?
The market expects the Federal Reserve to significantly cut interest rates in 2024, and there is more than a 70% chance that interest rates will fall to 3.75% or 4.00% by the end of 2024.
Goldman Sachs believes that the Federal Reserve will cut interest rates five times in 2024, which will weaken the dollar, and GBP/USD will rise to 1.35 by the end of 2024.
“Other major central banks are expected to cut interest rates less than the Fed next year, and we expect the dollar to remain on the defensive,” BNP Paribas said.
HSBC noted that “reduced concerns about the Fed continuing to maintain high interest rates have pushed the dollar lower, but it is increasingly difficult to sustain this situation against the backdrop of slowing global economic growth and expectations of higher interest rates. Many conditions remain Pointing to a strong dollar, only a global soft landing will bring about a clear dollar bear market.”
