Unleashing the Potential: Pound’s Economic Outlook for 2024

By Gustavo Nils Jan7,2024

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Pound knows its interests. Forecast as of 05.01.2024
Dmitri Demidenko
Will Reuters’ forecast of 1.29 for GBPUSD have come true by the end of 2024? The pair is correcting on the revaluation of market values, and its future will depend on US jobs data. Let’s discuss it and make a trading plan.

The pound will collapse — the statement of Amundi, the leading European asset manager, sounds terrifying. The company believes the Bank of England will hold the REPO rate at high levels, which the UK economy won’t withstand. That reminds me of the beginning of 2023, when the BoE forecasted a long recession for five consecutive quarters, and the GBPUSD was hanging by a thread. Ultimately, the pound became the second-best performer among G10 currencies in 2023 after the franc. It strengthened 4.7% against the US dollar in November-December alone. Does history repeat itself?

Amundi’s calls for selling the pound aren’t in line with the prevailing opinion. Reuters’ consensus forecast suggests the GBPUSD will have grown to 1.29 by the end of 2024, 2% more than the current levels. This estimate is based on Great Britain’s stronger-than-expected economic stability and the BoE’s slowness.

Although UK inflation slowed down to 3.9% in November, it’s still higher than in the US and the eurozone, which allows the derivatives market to pencil in the start of policy easing by the BoE in May, in comparison with March and March-April by the Fed and the ECB. London is expected to cut rates by 140 basis points in 2024, while Washington and Frankfurt are expected to cut rates by 150.

Based on business activity, the economy of Albion looks much better than its European counterpart. Even though its GDP is worse than the US one, the divergence in economic growth could be reduced. A slowdown in US GDP will deprive the dollar of an important trump card — American exceptionalism — and will support the GBPUSD bulls in the medium term.

The optimistic feeling about the pound is due to its low trade-weighted rate, which supports UK exports, and its procyclical currency status. If the global economy continues recovering, that will benefit the GBPUSD.

At the same time, the pair’s rally in November-December was primarily based on better global risk appetite. The Christmas surge in US stock indices left no chance for the bears. They managed to lick their wounds after the market reconsidered its views. The revaluation of values results in the correction of dollar pairs, and the slowness of the Bank of England does not help the pound sterling.

The situation could worsen if non-farm payrolls for December differ significantly from Reuters’ forecast of +170 thousand. In that case, we should sell the GBPUSD at market. Only the data close to the estimate will allow buying the pound on breakouts of resistance at $1.267 and $1.268.

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