Investing.com – The pound sterling has lost its status as the only currency to outperform the US dollar so far, but Bank of America believes there remains a constructive case for the British currency in 2025.
Since the GBP crisis of September 2022, sterling has been on a virtually uninterrupted upward trend, BoA Securities said, helped by the removal of political uncertainty this year and favorable conditions to continue.
“Despite Trump 2.0, the conditions for further GBP outperformance remain our base case, reinforced by our expectations that Britain is unlikely to be the focus of the new US administration,” BoA said.
Several questions remain about the sustainability of UK public finances in the medium term, in the wake of the UK budget and against the backdrop of rising deficits and heavy emissions, the bank noted.
However, it would be wrong to assume that the markets have singled out Britain for any specific discipline. Our framework for idiosyncratic GBP risk premia finds no evidence for this. Measures of the UK risk premium are lacking, including stable CDSs and our favorite measure, the GBP full premium.
“The result is that while the GBP has moved off the highs in recent weeks, we do not see this as the start of a new phase of major cuts. The constructive narrative we have set forth remains valid. Trump 2.0 creates uncertainty, but Britain is not unique here,” said BoA.
“The secular bullish trend for the British pound remains intact and is helped by near-term fiscal stimulus. Trade uncertainty has increased, but we believe Britain is better placed than many of its European peers to weather this storm.”
