The Pound to Dollar (GBP/USD) exchange rate jumped to highs just above 1.3480 on Wednesday following the announcement of a US-Iran cease-fire and, although there has been a retreat, it is still trading above the 1.3400 level.
Scotiabank notes there is a high degree of uncertainty in the short-term. Nevertheless, the bank is bearish on the US currency and expects that the dollar will lose ground over the remainder of this year with GBP/USD finishing the year at 1.37.
According to Scotiabank, the dollar overall is overvalued by around one standard deviation or at least 2% at current levels which will tend to drag the currency lower and certainly limit the upside. The bank also notes that the currency has under-performed in relative terms since the start of the Iran war.
On a short-term view, the bank notes that historically April tends to be a weak period for the US currency while the Pound tends to have a strong month which will tend to support GBP/USD.
As far as monetary policy is concerned, Scotiabank is still backing two Federal Reserve interest rate cuts this year which will tend to undermine the US currency.
