The pound has been surprisingly strong in 2024, but I think 2025 will see a reduction in trade.
Last year’s strength was fueled by a more hawkish central bank, but inflation last year was not the result of a stronger economy (like the US), but structural factors. Now the outlook for growth is deteriorating and the central bank continues to hold off on interest rate cuts.
Meanwhile, the new Labor government got off to a rough start with Starmer’s low approval ratings and some genuine pessimism.
The most important voter for the markets is fixed income, and gilts are in a bad place. With today’s rise of 11 basis points, US 10-year yields are the highest since 2008.
UK 10-year yields
The fear is that Labor will resort to more ways to raise revenue to improve the budget, creating more hurdles.
As for the pound, it is at its lowest since April with today down 132 pips and just 40 pips off the April low.
GBPUSD weekly