Sterling has been one of the few major currencies to appreciate against the US dollar over the past month. As a result the real effective exchange rate is now around 5% above its ten-year average and almost 15% above its ten-year trend. Despite the recent strength of the currency, we forecast it to fall back slightly against the dollar. A key reason is the relative prospects for UK and US monetary policy. Specifically, we think the gap between overnight rates in the US and UK will be higher over the next year or so than currently envisaged by both investors (based on OIS rates) and the consensus of economic forecasters.
Become a client to read more
This is premium content that requires an active Capital Economics subscription to view.
Already have an account?
You may already have access to this premium content as part of a paid subscription.
Sign in to read the content in full or get details of how you can access it
Register for free
Sign up for a free account to gain:
- Unlock additional content
- Register for Capital Economics events
- Receive email updates and economist-curated newsletters
- Request a free trial of our services