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The pound is forecast to rise sharply against the dollar after one of the City’s most gloomy analysts admitted it was “wrong” to underestimate Britain’s economic prospects.
Citi has scrapped a previous prediction that the mini-budget would see the pound fall to par with the dollar and now predicts sterling could move towards $1.30 by early next year.
Sterling is currently trading at a one-year high of $1.26 against the dollar following a boost from strengthening economic activity and a more resilient housing market.
Vassilios Gakionakis, head of European foreign exchange strategy at Citi, said predictions of a “material recovery” in house prices and a decline in consumption had not come true.
In a note to customers on Tuesday, he said: “We have been wrong, clear and simple.
“The reality is that, while inflation displays some temperamental persistence, contrary to what we would have expected, activity has proven to be far more resilient.”
The view was echoed by analysts at NatWest, while Goldman Sachs said earlier this month that it had adopted an “outright constructive stance” on sterling in what it described as a “new era” for the currency as the Bank of England is expected to be maintained. Raising interest rates to curb inflation.
Kamakhya Trivedi, head of global foreign exchange at Goldman, said: “Essentially, we think that the factors that acted as headwinds on sterling in 2022 – mostly natural gas prices and the relative stance of Bank of England policy – will turn into tailwinds.” have turned.
“UK terms of trade have improved since August and, in turn, the magnitude of the potential real income squeeze has narrowed meaningfully. At the same time, the housing market is showing possible signs of stabilizing.
Bank policymakers are expected to raise interest rates for the twelfth consecutive time on Thursday, to 4.5 percent.