ExchangeRates.org.uk - The Pound to Dollar exchange rate (GBP/USD) dipped to 6-month lows below 1.2500 last week before a tentative recovery.Danske considers that the most likely outcome is for slight GBP/USD gains in the first quarter of 2025 before a retreat to 1.22 on a 12-month view amid a dollar grind stronger.
It does, however, note an elevated risk profile during the year.
Danske Bank (CSE:DANSKE) considers that there will be pro-growth and inflationary policies in the US with relatively strong growth dynamics.
It also considers that the “red sweep” policies will increase the potential for higher real US rates.
In this context, the bank has adjusted its Federal Reserve forecasts, although it still sees the potential for four 25 basis-point cuts during 2025.
It does note that the dollar will struggle if downside risks to the US economy materialise and notes the risk of a short-term correction weaker given market positioning.
As far as the Bank of England is concerned, Danske expects that there will be quarterly interest rate cuts which will leave rates at 3.75% at the end of 2025.
If there are forecasts are correct, overall GBP-US yield differentials should not change significantly during the year.
Nevertheless, Danske does see the risks of more substantial BoE rate cuts, potentially hurting the Pound.
This content was originally published on ExchangeRates.org.uk