GBP/USD could go much higher – SocGen

GBP/USD is breaking free from monetary policy expectations. Economists at Société Générale analyze the pair’s outlook.

No room for negative UK economic surprises versus peers

We expect UK growth to average 0.6% in 2024 versus 0.8% for the Eurozone and 0.9% for the US. This is more optimistic than the consensus, which sees only 0.4% and would make the UK economy underperform even Sweden and be the slowest economy next year. This leaves almost no room for negative UK economic surprises versus peers. 

On the monetary policy front, BoE and Fed implied pricing for June 2024 has converged, with the first rate cuts expected by mid-year. But the market might be too dovish regarding the BoE given growth and inflation paths in the US and UK.

GBP/USD is already breaking free from monetary policy expectations, an early bullish move that is due solely to November’s Dollar weakness. If the next leg comes from Sterling strength, GBP/USD could go much higher.