Proactive Investors - The pound dipped to near a two-week low on Tuesday against the US dollar but the British currency is predicted to romp higher in coming months, thanks to economic and political factors.
Sterling is the best-performing currency among the G10 currencies so far in 2024.
Europe’s largest asset manager, Amundi, today joined the chorus forecasting the pound will benefit from a more stable economy and government.
Against the dollar, sterling stands at $1.2907 today, and Amundi predicts it will rise to around $1.35 by the end of the year.
With $2.3 trillion in assets under management, the French colossus's head of forex, Andreas Koenig, says: “You have an improvement in the economic environment, and you have a relatively stable government, so you have a lot of arguments in favour of sterling.
"It might be less risky and it might be a diversifying alternative in the portfolio, which is supportive."
This echoes comments earlier in the week from the chief investment officer of RBC BlueBay, who said the UK was on the verge of becoming "the most politically stable country in the G7 for the first time in quite a long time".
JPMorgan (NYSE:JPM) also predicted sterling will regain $1.35 by next March for the first time in what will be three years, which is also Goldman Sachs (NYSE:GS)' long-term target for the GBP/USD.
Likewise, Citi said it sees the GBP strengthening against the euro to £0.82 from £0.8416 today, which would be the first time since the Brexit result in 2016, as the new government "provides opportunities to address fiscal issues and to improve trade relations with the EU, both of which are currency positive".
A recovery in GDP and a delay to the Bank of England's first rate cut have helped the pound this year, but the monetary policy committee is expected to lower interest rates in September.
The past three weeks have seen GBP net long positions increase consecutively, according to the Commitments of Traders report, driven by an increase in long positions, which are at record levels, analysts at Rabobank noted.
With the trade-weighted sterling index now barely 3% away from the levels traded in June 2016, before the Brexit vote, analysts at ING noted a growing number of people view this as a removal of the Brexit risk premium in sterling aided by new Prime Minister Keir Starmer's desire to engage more closely with Europe.
"While we have some sympathy with that view, we ascribe sterling strength more to sticky UK inflation and the limited pricing of BoE rate cuts this year, plus July's drop in the dollar on the back of softer US price data," they added.
GBP/USD is currently "fairly priced - ie, not significantly undervalued", the ING analysts said, predicting that two or maybe three BoE cuts will result in sterling dropping.
"The 1 August MPC rate meeting will also be the first big opportunity since the UK election to hear what the BoE are really thinking. We see this as a downside risk to sterling too."