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Bank of America Foresees Sterling Strength on Improved UK-EU Ties and AI Investment
Summary
Bank of America strategists maintain a positive medium-term outlook for the British pound, citing improving UK-EU relations, growing AI investment, and a pragmatic Bank of England as key supporting factors.
Bank of America (BofA) has expressed a positive medium-term view on the British pound, anticipating further strength against the euro. The bank recently closed a profitable short EUR/GBP position, citing near-term political uncertainty in the U.K., but its strategists noted they remain bearish on the currency cross and see the pound strengthening toward the 0.84 level against the euro.
Analysts at the bank identified several structural factors that could support sterling. A primary driver is the improving relationship between the United Kingdom and the European Union. BofA suggests that progress in reducing non-tariff trade barriers could help ease supply constraints and provide a significant growth premium for the U.K. economy.
Another key tailwind, according to the bank's note, is the U.K.'s increasing attractiveness as a destination for investment related to artificial intelligence. Strategists wrote that the U.K. has been a "major beneficiary of the search for alternative AI markets outside of the U.S.," which could provide a sustained boost to the currency.
AdFinally, the Bank of England's monetary policy was highlighted as a supportive element. BofA commented that the central bank has been "rewarded for its pragmatism" in its approach to interest rates. With the bank's economists no longer forecasting further tightening, this policy stance is expected to be supportive of economic growth.