Pound Sterling, the currency of the United Kingdom, has recently experienced a slight undervaluation according to investment bank analysts. Despite a recent slide in its value, forecasts from leading investment banks suggest that the exchange rate will end the third quarter at higher levels. The median estimate for the Pound is currently residing some 70 pips higher than the current spot exchange rate.
These forecast estimates, available for download from Corpay, indicate that while the median estimate for Pound-Euro is higher, the mean is slightly lower than current levels. This data suggests that the recent fall in the Pound has left it better balanced from a valuation perspective. If these forecasts are accurate, Pound Sterling is poised for a gentle and modest appreciation trend into the quarter-end.
Among the more bold predictions from investment banks, LBW Bank remains bullish, forecasting a peak of 1.22 by the end of the third quarter. On the other hand, UK high street name Santander is more bearish, suggesting a return to 1.15 by the end of September.
The recent fall in the Pound to Euro exchange rate was triggered by a Bank of England interest rate cut, prompting investors to reduce their exposure to the British Pound. However, the subsequent technical rebalancing in the market has left positioning somewhat cleaner, and the Pound has since recovered about half of its decline.
Analysts who believe that the Pound can end the third quarter higher than its current levels point to the UK’s relatively high interest rates as a potential support for the currency in the coming weeks. Bank of America notes that the Pound remains the best performing G10 currency year-to-date, with fundamental and secular positives still intact.
Recent economic data from the UK, including strong GDP growth and a decrease in the unemployment rate, suggest a positive outlook for the economy. This could lessen the need for the Bank of England to deliver further interest rate cuts in 2024, which would further bolster UK interest rate expectations and support the Pound.
In conclusion, while the Pound Sterling may have experienced a recent slide in value, forecasts from investment banks suggest that it is slightly undervalued and poised for a potential appreciation trend. Economic indicators and interest rate expectations in the UK are positive, which could support the Pound in the coming weeks. Investors will be closely watching for any developments that could impact the currency’s value as the third quarter progresses.
