There are some reasons to think that the pound’s recent rally may struggle to go much further. Rising US interest rates could prompt something of a recovery in the ailing dollar, while Brexit uncertainty could rise again as the negotiations move on to the ultimate trade deal.
But our expectation that the UK economy will once again outperform gloomy consensus forecasts this year, allowing the Monetary Policy Committee to raise interest rates more quickly than expected, suggests that the pound’s rally could go substantially further.
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