Key US banks betting on GBP continuing strong streak

Key US banks are wagering that Sterling will continue its winning streak, which has brought it to its strongest level since the 2016 EU referendum. They point to a resilient economy and hopes for political stability as factors likely to support the currency.

The Pound has been the top-performing major developed market currency this year, rising 1.7% against the US Dollar and nearly 3% against the Euro.

The gains have been driven by stronger-than-expected growth and persistent inflation, which are likely to prevent the Bank of England from making aggressive interest rate cuts this year. Additionally, Labour's decisive election victory has boosted investor optimism, suggesting an end to the volatile political climate that has often impacted Sterling.

This contrasts with France, where recent parliamentary gains by the far left and far right have unsettled investors, while the upcoming US Presidential election has also unsettled markets.

Analysts at JPMorgan project that Sterling will reach $1.35 by the end of Q1 2025, while Goldman Sachs anticipates it will achieve that level over the long term.

Citi Bank analysts have expressed a bullish outlook on the Pound, forecasting it will strengthen to £0.82 per Euro for the first time since the UK voted to leave the EU in 2016. Currently, Sterling trades at just over £0.84 to the Euro and is at its strongest level against the G10 currencies since 2016.

Rising optimism for Sterling is evident in the surge of currency speculators betting on its increase, with such wagers reaching their highest level on record since 1988, according to data from the US Commodity Futures Trading Commission.

Despite the UK raising interest rates to 5.25%, the country has emerged from a mild recession, with the economy growing twice as fast as anticipated in May.

Persistent high services inflation has reinforced the belief that the Bank of England will not lower interest rates at its next meeting on August 1st. Meanwhile, markets have heightened expectations of a September rate cut by the Federal Reserve as the US labor market shows signs of weakening.

‍