Will GBP exchange rates drop throughout the remainder of the year?

Sterling exchange rates have been in the headlines often throughout 2023 so far, as the currency was the strongest performing currency of the G10 in the first half of the year.

As the result of the gains made by the Pound, GBP/EUR is currently trading within 1-cent of its 52-week high making the conversion of Pounds into Euros an attractive proposition.

Although GBP/USD had a very strong first half of the year, the Pound has begun to gradually drift from its highs over the past few months.

GBP/USD, also known as cable, has lost almost 6-cents from its annual high which it hit back in mid-July.

The fall is due to both a strengthening US Dollar but also the expectations of fewer interest rate hikes from the Bank of England moving forward. Up until recently the expectation was for the base rate of interest to reach 6% by the end of the year, but that expectation has declined.

A more realistic rate of 5.75% is now expected which means there could be a further 0.5% hike between now and the end of the year.

The next rate hike is expected to take place this month, on the 21^st of September and an increase 0.25% is expected to take place.

That leaves 0.25% between September and the end of the year, and I think that if the financial markets start to predict that this won’t take place, we could see GBP exchange rates drift once again.

So far, GBP has remained strong against the Euro, but if GBP/EUR follows a similar pattern to GBP/USD the pair could have a few cents to fall. Analysts at Danske Bank have predicted that GBP/EUR could fall as low as 1.1365 later in the year.

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