Executive Summary On the GBP side of the GBP/USD pair, the UK’s economic recovery, rising inflation and our expectation of smaller-than-anticipated interest rate cuts by the Bank of England (BoE) provide support for the pound against non-USD currencies. On the USD side, we expect the USD Index to rise initially before declining. After assessing the relative strength of the driving factors on both sides of this currency pair, we anticipate a slight decline in GBP/USD in the short term (0-3 months). Over the medium term (3-12 months), we expect the pair to stabilize. Additionally, due to differences in economic strength, monetary policy and political risks, we believe the pound will strengthen against the euro in the short term.

1. Macroeconomics

Last year, the UK economy experienced significant volatility. After a strong start in 2024, growth showed signs of softening but rebounded toward year-end. A 1.4% year-on-year GDP increase in Q4 locked in annual growth of 0.9% for 2024....