ExchangeRates.org.uk - A currency surge pushed the Pound to Dollar exchange rate (GBP/USD) to 6-month lows below 1.25 in November before a rally to near 1.27.MUFG expects Trump policies will trigger further dollar strength in the first quarter of 2025 and push GBP/USD to lows around 1.2350.
Nevertheless, it expects a rally to 1.30 at the end of next year as dollar strength fades.
MUFG expects a rapid start for the Trump Administration in January with a raft of tariffs, action on immigration and legislation to extend tax cuts.
The bank expects that this combination will provide further dollar support and push the Pound lower.
At this stage, MUFG expects that the Fed will only cut rates three times during 2025 due to fresh inflation concerns.
Nominal interest rates will tend to support the dollar, but the bank expects growth will be disappointing and higher inflation will also erode real yields and gradually sap dollar support.
As far as the UK is concerned, MUFG expects that the Bank of England has scope to cut interest rates to 3.75% next year as inflation pressures subside.
Rate cuts will limit scope for Pound support, but MUFG expects that the UK economy will be relatively insulated from US tariffs.
This content was originally published on ExchangeRates.org.uk