Pound eases against dollar after hitting 30-month high

Sterling (GBPUSD=X) has entered correction territory, weakening against the dollar after reaching a 30-month high on Friday. At the time of writing, the pound was trading slightly lower at $1.3273, following a 1.5% surge last week.

The pound's recent strength has been driven by a rally in global equity markets and expectations of further interest rate cuts from the US Federal Reserve. The Fed’s 50 basis point cut last week has encouraged investors to seek higher-yielding assets, boosting demand for sterling. This year, the pound has emerged as the top performer among the Group of 10 currencies, with market bets for further gains at their highest in almost a decade.

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However, uncertainty surrounding the upcoming UK budget could weigh on the pound in the coming weeks. Analysts warn that the currency may come under pressure, especially as traders look to lock in profits after its recent strong rally.

“I think the pound-dollar pair is living on borrowed time,” said Tim Graf, head of EMEA macro strategy at State Street, according to Bloomberg. “Ultimately, I think the pound will be lower against the dollar in three to six months’ time.”

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Nick Andrews, a senior currency strategist at HSBC (HSBA.L), sees further challenges ahead for sterling. He expects investors to adjust their outlook, pricing in deeper interest-rate cuts from the Bank of England. Andrews estimates that 225 basis points of cuts will be needed by the end of 2025, compared with the 150 basis points priced in by the market.

While the pound's slower rate cuts compared to the US have made it attractive for yield-seeking investors, Matthew Landon, global market strategist at JP Morgan Private Bank, cautioned that there’s “little sense to chase these moves higher over the near-term.”

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