**Pound Sterling to Dollar Forecast: CIBC Sees 1.37 Year-End Target Despite Risk-Off Slide**
*Originally reported by Adam Solomon*
The British Pound (GBP) versus the US Dollar (USD) currency pair, widely referred to as GBP/USD, has faced considerable turbulence in recent months. The backdrop has been a shift towards risk aversion in global markets, reigniting USD strength amid widespread uncertainty. However, analysts at Canadian Imperial Bank of Commerce (CIBC) maintain a constructive view and project the GBP/USD pair to rally towards 1.37 by the end of the year, even as risk-off sentiment weighs on sterling in the near term.
**GBP/USD Recent Performance Driven by Risk Sentiment**
Sterling has had a volatile journey throughout 2024, seeing swings in value against the US Dollar that reflect both domestic UK economic issues and global factors:
– **Early Year Optimism:** The year started with hopes of a resilient UK economy fuelling gains for the pound.
– **US Dollar Resurgence:** The USD regained strength as global risk appetites soured, partly triggered by central bank signaling and renewed geopolitical concerns.
– **Sterling Under Pressure:** Recent weeks have seen the Pound retreating from highs as safe-haven flows buoy the dollar.
CIBC’s currency strategists argue that while shorter-term headwinds could persist, underlying trends remain favorable for pound recovery later in the year.
**Market Factors Impacting GBP/USD**
Various distinct drivers are influencing GBP/USD’s path:
1. **Monetary Policy Divergence:**
– **US Federal Reserve:** The Fed has hinted at a more cautious approach to interest rate cuts in 2024. Sticky inflation and resilient US growth support the dollar as investors price in a delayed easing cycle.
– **Bank of England (BoE):** The BoE has been more dovish than the Fed, but Governor Andrew Bailey and peers have consistently flagged inflation persistence risks. While UK rate cuts are likely, the market sees them in the context of gradual global easing.
2. **Economic Data Trends:**
– **United Kingdom:** After a shallow technical recession in late 2023, the UK economy has shown early signs of stabilization. Unemployment has remained relatively low, and recent Purchasing Managers’ Index (PMI) readings suggest service sector robustness. However, subdued consumer spending and tight fiscal conditions linger.
– **United States:** The US economy has consistently outperformed expectations. Latest jobs data points to a robust labor market while consumer resilience has underpinned GDP growth.
3. **Global Risk Appetite:**
– **Safe-haven demand:** During periods of heightened geopolitical risks or equity volatility, the USD typically benefits as investors seek safe assets.
– **Risk-on periods:** When global markets rally, the pound often finds some support as investors look for higher yields away from the dollar.
**CIBC’s GBP/USD Outlook: Favoring Sterling Recovery**
CIBC strategists note the following key points in their outlook for GBP/USD:
– **Short-term Dollar Strength:**
– Ongoing risk-off sentiment could keep GBP/USD subdued in the near term. Markets are sensitive to Federal Reserve communications as well as global headlines, from US-China relations to evolving situations in the Middle East.
– **Medium-term Sterling Recovery:**
– The analysts anticipate that as some risk factors abate and the Fed eventually commences its rate-cutting cycle, the US Dollar will relinquish a portion of its gains.
– The UK’s relative economic resilience and anticipated narrowing of policy divergence will favor a rebound in GBP.
**CIBC Pound Forecasts:**
Their formal projections see GBP/USD trading close to 1.37 by year-end 2024. This represents a sizable appreciation from current levels, particularly given the dollar’s strong performance so far.
**Key Factors Supporting CIBC’s Year-End Forecast**
The forecast is underpinned by several anticipated developments:
– **Fed Policy Pivot:** As
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