Credit Agricole maintains a positive outlook on the Pound with support from stronger fundamentals including the relative interest rate outlook and more stable political conditions.
The Pound to Euro (GBP/EUR) exchange rate is trading at 1.19, just below 4-week highs and close to 23-month highs.
The bank does note that positive elements have been priced in to some extent and the Pound is slightly overbought on a short-term view.
In this context, it considers it will be difficult to secure further near-term gains, but expects GBP/EUR will secure further medium-term gains with an end-2024 forecast of 1.2050.
Credit Agricole notes that investor confidence towards the UK appears to have improved with increased capital inflows into UK markets.
Politically, the bank notes that there has been a sharp contrast between UK political developments and the political gridlock in France following the parliamentary elections.
It expects this contrast will underpin the Pound.
On economic grounds, Credit Agricole notes the improved UK data flow and more hawkish than expected rhetoric from Bank of England MPC members which has boosted UK yield support.
It expects forthcoming data will continue to be watched closely for further evidence on the outlook and interest rate outlook.
