MUFG Forecast: GBP/USD Reversal From Below $1.20
The Pound to Dollar (GBP/USD) exchange rate slumped to 1.2250 amid trade-war fears before a recovery to near 1.2450 as Mexican and Canadian tariffs were postponed
MUFG expects that dollar strength will dominate initially with GBP/USD sliding to below 1.20 during the first quarter of 2025.
It does expect a dollar reversal later in the year with GBP/USD rebounding to 1.3000 at the end of this year.
MUFG notes there are major uncertainties surrounding the US and political outlook which demands an important element of flexibility surrounding forecasts.
Overall, however, the bank expects that an aggressive stance on trade will lead to further short-term dollar gains.
Over the second half of the year, however, MUFG expects that the US economy will start to weaken.
A downturn would undermine dollar demand and potentially lead to a reversal in long dollar positions.
Importantly, weaker growth would also allow the Federal Reserve to resume cuts in interest rates which would also undermine the US currency.
MUFG notes increased risks surrounding UK gilts, but does not expect that the bond market will slide into disarray.
As far as the Bank of England is concerned, MUFG expects there will be four rate cuts this year compared with market expectations of three, curbing Pound support.
Tim Clayton
Contributing Analyst
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