Pound Power Play: Will the British Currency Survive or Thrive Like a Desert Survivor?

Sterling Climbs the Cliff Face

Right then the British pound! Seems it's decided to take on a bit of a climb eh? Currently dangling around $1.36 a dizzying height not seen since early 2022. Up a solid 8.7% against the greenback this year. But remember in the wild what goes up must come down... unless you've got the right gear and a solid plan. Now against the Euro it's a slightly different story like trying to wrestle a greased pig down 2.9% year to date. Still fighting to hold its ground. One pound will still get you around 1.173 euros. The currency market eh? Sometimes it's like wrestling a crocodile you think you have it pinned but you never really do.

Dollar Down Under? Or Just Playing Possum?

Now the real question is is the pound genuinely strong or is the dollar just playing possum? Janet Mui from RBC Brewin Dolphin reckons it's more the latter. "The relative strength of the pound has been more of a weak U.S. dollar story this year," she says. Basically the dollar's been a bit wobbly ever since Trump's trade policies started shaking things up. Like trying to build a fire with wet wood it just doesn't want to catch. Confidence has been low in American assets sparking all sorts of de dollarization anxiety.

Liz Truss's Legacy: From Rock Bottom to Base Camp

Paul Jackson from Invesco reckons the pound is on a recovery mission from the 'extreme low' we saw after that whole Liz Truss 'mini budget' fiasco. Remember that? The pound and UK government bonds did a nosedive! Still he agrees that dollar weakness is a big factor. The pound's simultaneously weakening against the euro tells its own story. Like trying to navigate through a jungle with a map upside down Truss definitely led us astray.

Crystal Ball Gazing: 1.40 or Bust?

Jackson fancies the dollar to keep weakening along with the U.S. economy. And as for the Euro? Stronger on the optimism from the coming fiscal boost especially in Germany. The ECB has probably done most of its monetary easing while the Bank of England and the Federal Reserve have some catching up to do. In 12 months he's expecting GBPUSD to be around 1.40 and GBPEUR to be around 1.15. That's a roughly 2.9% premium from where we are now. But in the wild forecasts are like footprints in the sand easily washed away!

Geopolitical Gambles and Rate Cut Risks

RBC Brewin Dolphin's Mui reckons the outlook for the pound isn't exactly thrilling in the short term. But and it's a big but geopolitical shenanigans could send it skyward! "In the near term further upside for the pound may be limited due to softer UK economic momentum and more scope for the Bank of England to cut rates," she says. Improved relations with the EU could translate into more concrete action giving the pound a proper shot in the arm. The future is uncertain like trying to predict the weather in the Himalayas. All you can do is prepare for anything.

Bearish on Britain: A Pound of Pessimism?

Brian Mangwiro from Barings is feeling a bit more gloomy. "We are bearish GBP in the medium term. We would forecast EURGBP at 0.875 and GBPUSD at 1.30 in [six months]," he says figuring the macroeconomic backdrop doesn't justify the pound's recent strutting. He reckons it's just a post liberation day sell off of the U.S. dollar. Like eating a dodgy looking beetle the sentiment will likely reverse as the US growth outlook rebounds and corporate earnings remain resilient. All signs point to a future dollar rebound dragging the Cable (GBP/USD Exchange Rate) lower. Remember in the financial wilderness sometimes the best laid plans go to pot. You’ve just got to adapt and keep moving forward!