The Pound to Dollar (GBP/USd) exchange rate is currently trading around 1.3350 having bounced off the 3-month low of 1.3220 recorded in the second week of March, but struggling to make any headway amid dollar strength and vulnerable risk conditions.
Bank of America (BoA) sees near-term downside Pound risks, but expects GBP/USD can trade at 1.34 at the end of the second quarter with scope for significant gains to 1.43 by the end of 2026.
The bank expects the dollar will maintain a strong tone in the short term with further defensive support amid the Middle East conflict.
These risks could extend beyond the second quarter and there would be scope for further dollar gains if the conflict intensifies, especially given damage to the European and Chinese economies. Nevertheless, the bank expects dollar demand will fade later in the year which will provide a GBP/USD tailwind.
As far as the UK is concerned, BoA sees risks associated with May’s local elections, but the bank overall is bullish on the Pound, especially as it expects the UK economy will be resilient in the face of the energy shock with higher yields helping to underpin the currency.
