ExchangeRates.org.uk – The Pound to Dollar () exchange rate dipped to 6-month lows below 1.25 in December before stabilising. Scotiabank (TSX:) expects that a strong US economy and high yields will drive the dollar to fresh 2-year highs with sliding to parity.
In this environment, it expects GBP/USD will retreat to 1.22 at the end of next year.
Scotiabank expects that the Trump Administration will enact tax cuts and de-regulation which will support the US economy.
The bank also sees the potential for a further positive wealth effect from the strength in US equities which will also help underpin consumer spending and investment.
In this context, it has revised its 2025 GDP growth forecast to 2.1% from 1.8%.
With concerns over inflation, it also expects that there will be a significant impact on Federal Reserve policy.
It now expects that the Fed will be only able to cut interest rates twice in 2025 to 4.00% which will keep rates higher than the Euro-Zone.
Scotiabank expects that the strength in equities and higher yields will continue to underpin the US dollar during the year.
It does see a reversal in 2026 as the US economy slows with GBP/USD recovering to 1.30 at the end of 2026.
This content was originally published on ExchangeRates.org.uk
