GBP vs USD: A Currency Showdown – Pound’s Rise, Dollar’s Dip.

• Barclays bullish on GBP: Barclays maintains a positive outlook on the British pound, especially against the euro, following the BoE’s “hawkish hold” on interest rates.
• GBP’s advantage: The BoE’s stance contrasts with other central banks winding down their rate hikes, giving the pound a “carry advantage” and making it more attractive for investors seeking higher returns.
• EUR forecast: Barclays predicts the GBP to strengthen to 1.19 against the euro soon, with a potential rise to 1.22 by 2025, reflecting continued pound appreciation.
• Fed’s rate cuts: The US Dollar Index (DXY) struggles as the Federal Reserve cut rates by 50 basis points, with more cuts expected but not guaranteed, pressuring the USD.
• Mixed US data: Positive US economic data briefly lifted the dollar, but attention has shifted to upcoming inflation reports, adding uncertainty to the USD outlook.

GBP:
Barclays analysts remain bullish on the British pound (GBP) against key currencies, particularly the euro (EUR). Reflecting this confidence, Barclays confirms its “long GBP exposure versus the EUR” after the recent Bank of England (BoE) meeting. Following the Monetary Policy Committee (MPC) meeting last week, Barclays pointed to the BoE’s “hawkish hold” as a key factor for the pound’s strength. The central bank kept interest rates steady while signaling possible future rate hikes to combat inflation, despite indications of slowing price growth and a resilient economy. This approach stands in contrast to other central banks, which are nearing the end of their rate hike cycles, giving the pound a “carry advantage” and making it more appealing to investors seeking higher returns. Barclays expects the BoE to move toward a “slow and shallow cutting cycle,” meaning that any future rate cuts will be gradual and minimal, offering continued support for the GBP.

EUR:
Backing their positive stance, Barclays predicts the pound will keep outperforming other G10 currencies. Specifically, they forecast the GBP to strengthen to 0.80 against the euro (EURGBP) in the coming weeks, which equates to 1.19 in the GBP/EUR exchange rate. A new forecast suggests that by 2025, the rate could approach 1.22, marking further GBP strength. This would make it more expensive to buy euros with sterling, reinforcing the bank’s long GBP exposure against the EUR, a bet on the pound’s continued rise in value relative to the euro.

USD:
Meanwhile, the US Dollar Index (DXY) rebounded to near 100.65 during Asian trading hours on Friday. However, expectations that the Federal Reserve (Fed) will lower interest rates in the near future are weighing on the USD. Last week, the Fed cut interest rates by 50 basis points (bps), which Fed Chair Jerome Powell described as a “recalibration” to support the labor market while keeping inflation on track toward the 2% target. More rate cuts are expected, although the Fed has not committed to a specific path, which could further pressure the DXY downward in the near term. Market data shows a nearly 50-50 chance of another large 50 bps cut, with the odds slightly favoring a smaller 25 bps cut. Positive US economic data provided a brief lift to the dollar, but the focus has shifted to upcoming US inflation data. Recent reports showed durable goods orders holding steady in August, while the US GDP rose by 3.0% in Q2, in line with previous estimates. Fed officials continue to signal more rate cuts, contributing to the overall weakness in the US Dollar Index.