BofA Mark Sterling Forecasts Higher

Bank of America write “our increasingly constructive view on GBP is now formally hardcoded into our 24-25 profile.”

• “Our 2024 year-end EUR/GBP target shifts from 0.88 to 0.84 and from 0.86 to 0.85 in 2025.”
• Their “GBP/USD call is revised from 1.31 to 1.37 by y/e 2024 and from 1.40 to 1.41 in 2025.”
• They see “much of the GBP appreciation front-loaded this year as policy divergence dominates sentiment.”
• They then expect “the pace of appreciation slows into 2025 as GBP/USD approaches fair value and as structural headwinds exert themselves on the UK economy.”
• They note that “what has been relevant for the US can equally be applied to the UK with both economies suffering from elevated services inflation and tight labour markets. Though US growth has been stronger for longer versus the UK, the nuance here is that expectations around UK macro have been very low.”
• “With the domestic economy continuing to improve, the pessimistic read on UK growth is harder to reconcile. We find ourselves on the optimistic side of the consensus.”
• “This could create interesting hedging opportunities in the year as growth peaks out and as event risks such as the General Election (& US Presidential Election) pressure volatility higher.”