GBP/USD is breaking free from monetary policy expectations. Société Générale economists analyze the pair’s prospects.
No room for negative economic surprises in the UK versus its peers
We expect average UK growth of 0.6% in 2024, compared to 0.8% in the euro zone and 0.9% in the United States. This is more optimistic than the consensus, which sees just 0.4% and would see the UK economy underperform even Sweden and be the slowest economy next year. This leaves almost no room for negative economic surprises for the UK versus its peers.
Regarding monetary policy, the BoE and Fed’s implied prices for June 2024 have converged, and the first rate cuts are expected to occur in the middle of the year. However, the market could be too dovish towards the BoE, given the US and UK growth and inflation paths.
GBP/USD is already breaking free from monetary policy expectations, with an early move higher solely due to the dollar’s weakness in November. If the next leg comes on the back of sterling strength, GBP/USD could rise much higher.
Source: Fx Street
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