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British pound to prove resilient against increasingly bullish U.S. dollar says Bank of America.
The U.S. banking giant says in a mid-year currency market appraisal that it's turned more bullish on the greenback in the second half of the year.
BofA expects the dollar to strengthen further as markets increasingly price a more aggressive Federal Reserve.
"We extend our bullish USD view and forecasts into 3Q ‘26," says Bank of America, arguing there is "likely further to run" in the dollar’s recovery under its base case of three Fed rate hikes this year.
We reported last week that another big Wall Street name, JP Morgan, has also shifted in this direction, evidence that the institutional consensus for ongoing dollar weakness is breaking.
BofA expects widening U.S.-Eurozone rate differentials and continued U.S. economic outperformance to underpin the move, while positioning remains well short of historical bullish extremes.
The Pound Can Withstand the Dollar Better Than Most
But sterling is expected to offer greater resistance than other major currencies.
Bank of America forecasts GBP/USD at 1.37 by year-end, suggesting an outperformance against EUR/USD (1.15).
The difference lies in sterling’s domestic support.
"Strong cross border M&A inflows likely to support sentiment as political uncertainty recedes and focus turns to enhanced UK-EU relations and lower trade frictions," says BofA, adding that overseas investors continue to provide an important source of demand for UK assets.
"GBP has been resilient to political developments in recent months partly due to a persistent foreign bid for UK assets, which we expect to continue," says the research.
That capital inflow has helped insulate sterling from domestic political developments that, in previous years, might have weighed more heavily on the currency.
There Are Still Risks
Bank of America cautions that scrutiny of government policy, particularly following the appointment of a new Chancellor in an Andy Burnham government, means sterling volatility could remain elevated.
"Near-term scrutiny on policy choices… suggests skew premium could remain stubbornly high for a bit longer."
Even so, the bank does not expect those concerns to overwhelm the structural support coming from international investment flows.
The contrast with the euro is notable.
While Bank of America expects EUR/USD to break lower as higher U.S. rates increasingly favour the dollar, sterling is expected to surrender far less ground thanks to continued foreign demand for UK assets and improving relations with the European Union.
For GBP/USD, the message is that a stronger dollar need not translate into a substantially weaker pound.
