Pound To US Dollar Forecast: GBP Slips Sub $1.34 Amid Fiscal Strain, US-China Optimism - Exchange Rates UK

What the desk is arguing

The desk argues that the GBP's slip below the $1.34 mark signals deeper fiscal strains in the UK, which may hinder the BoE's monetary policy effectiveness. Per the full note source, the pound's recent performance reflects investor anxiety over fiscal sustainability, especially in light of rising government debt levels and inflationary pressures.

Supporting this view, recent data indicates that UK public sector net borrowing rose to £20 billion in September, significantly above expectations, which could further strain fiscal resources. This backdrop of fiscal uncertainty contrasts sharply with the optimism surrounding US-China relations, which has bolstered the dollar's strength against the pound.

Where it sits in our coverage

Our consensus target for GBP/USD is 1.075, with a range of 1.04 to 1.12. Notable firm targets include: - jpmorgan: 1.10 (Mar26) - bofa: 1.04 (Mar26)

This view aligns with jpmorgan, which is positioned at the higher end of our range, while bofa presents a more bearish outlook, suggesting a divergence in sentiment among firms regarding the pound's trajectory.

How other firms see it

Firms like jpmorgan and citi share a more optimistic view on the pound, anticipating a potential rebound if fiscal measures are taken. Conversely, bofa and deutsche express caution, predicting further declines amid ongoing fiscal challenges.

The trajectory of EUR/GBP may also reflect the BoE's rate path, as shifts in European monetary policy could impact the pound's relative strength. Additionally, watch the USD/CNY relationship, as developments in US-China trade negotiations may influence broader market sentiment and risk appetite.