The pound is set to rise to its highest level against the US dollar in over two years, fuelled by growing optimism about the UK economy and greater political stability compared to Europe and America.
According to Amundi, a French fund manager with £1.8 trillion in assets, sterling could reach $1.35 by the end of the year, up from just under $1.30 today. This would mark a roughly 7 percent increase against the dollar since the start of the year.
Analysts are increasingly optimistic about the pound's performance against other major currencies due to the UK economy outperforming expectations and the greater political stability following Labour’s landslide victory in the general election. Additionally, there is an expectation that the Bank of England will gradually lower interest rates from 5.25 percent for the rest of the year, making sterling-denominated fixed-income assets more attractive.
While the headline consumer price index inflation has remained steady at the Bank of England’s 2 percent target for the past two months, services inflation, a closely watched measure by the central bank, remains elevated at 5.7 percent. Investors anticipate the Bank of England will reduce rates twice this year, starting in September. Analysts at Goldman Sachs noted that they "have been flagging sterling’s attractiveness relative to other ‘risky’ currencies" due to the UK’s "less uncertain political outlook than the euro area" and lower exposure to the downturn in the Chinese economy.
