The pound could hit $1.35 against the US dollar next year, experts at Goldman Sachs predict – but a top bond manager has warned the UK economy risks a ‘hard landing’.
A surge for sterling could boost British holidaymakers and would be a far cry from the aftermath of last year’s disastrous mini-Budget when it plunged to a record low of less than $1.04.
The pound is rising versus the dollar on bets that Britain will be slower to cut interest rates. However, bond firm Pimco thinks high rates could hurt the economy.
Yesterday, sterling climbed by more than a cent to just under $1.28 against the dollar amid latest comments from the Bank of England.
Deputy governor Sarah Breeden reiterated rates would have to remain high for an ‘extended’ period to combat inflation.
The pound is rising versus the dollar on bets that Britain will be slower to cut interest rates than the US
However, money markets are betting that the Bank will cut rates in May from 5.25 per cent to 5 per cent followed by a further series of falls to 4 per cent this time next year.
That has helped UK bond yields fall to around seven-month lows.
Daniel Ivascyn, chief investment officer at Pimco, said he was placing bigger bets on UK bonds – known as gilts – in the expectation that Britain will come under greater strain.
He told The Financial Times: ‘In the case of the UK – a smaller, open economy, with a consumer that’s feeling the brunt of central bank policy far more than their US counterparts – you just have a higher probability of more significant economic deterioration.
‘We do think there’s potentially more hard landing risks.’
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