Pound-to-Dollar Consensus Forecast Sees Steady Gains
- Written by: Gary Howes
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Tier-1 investment banks continue to see steady gains for the pound to dollar exchange rate.
That's according to Pound Sterling Live's Q2 survey of institutional forecasts, conducted at time when global markets absorb the implications of the Iran conflict.
Although the war is in its final phases at the time of writing, the impact of the conflict is beginning to work its way through the global economy.
That creates an element of downside risk that could bolster demand for the dollar. It's why we think the lower end of the forecast range uncovered by our survey is still worth considering.
However, the average of the forecasts for the coming quarters shows a steady uptick in GBP/USD, suggesting most investment bank models and analysts continue to expect steady USD depreciation.
The exact point targets are available on request from our partners at Horizon Currency, who commissioned the report.
"The USD has weakened, and energy prices have stabilised at a lower but still elevated level," says an analysis from Danske Bank. "Significant uncertainty remains regarding the outlook and terms of a potential peace agreement between the parties, with the timing of traffic resuming through the Strait of Hormuz being especially unclear."
The dollar rallied in the first two weeks of March as analysts responded to the Iran war in a classic risk-off fashion that traditionally supports the dollar.
But gains soon faded and investors began to position for peace by buying stocks and currencies that lost value during the opening days of the conflict.
Weakness has extended into April as hopes for a settlement grow. However, major pairs like EUR/USD and GBP/USD have since settled and pulled back.
One major concern is that the impact of the war - which will be felt via higher energy prices - hasn't been fully realised. A reminder of this comes at the time of writing, as it's reported UK inflation jumped to 3.3% in March.
The risk for investors in the coming months is economic disruption outside of the U.S. bolsters the dollar and GBP/USD undershoot the consensus predictions.
That's why we think considering the outlier forecasts for pound-dollar downside is also worth considering by those with upcoming dollar payments.
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