We suspect the pound will fall from $1.22 now to $1.20 by the end of this year. That’s not due to lower interest rate expectations in the UK compared to the US or the euro-zone, as we think the UK will be the last to cut rates. Instead, it’s due to the weak global backdrop we expect. But when UK interest rates are eventually cut late in 2024, we suspect rates will be reduced further and faster than investors expect. Our forecast is for UK rates to be cut all the way to 3.00% in 2025. That compares to investors’ current expectations that interest rates will still be above 4.50% by the end of 2025. That’s why we think the 10-year gilt yield will fall from 4.50% now to about 3.00% by the end of 2025.
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