A leading City forecaster has ripped up a previous prediction for the direction of the pound after admitting he got it wrong.
In a note, Vasileios Gkionakis, head of European foreign exchange strategy at Citi said “We have been wrong, plain, and simple.”
“The reality is that, while inflation exhibits some idiosyncratic persistence, contrary to what we expected, activity has proven far more resilient.”
He now reckons sterling could rise as high as US$1.30 at the start of next year after previously predicting it would drop to parity in the wake of the mini-Budget.
The pound is currently trading close to a one-year high against the dollar at US$1.26 after a boost from strengthening economic activity and a more resilient housing market.
Gkionakis said that its predictions of a “material correction” in house prices and a collapse in consumption had not come to pass.
This view was echoed by analysts at NatWest, while Goldman Sachs (NYSE:GS) said earlier this month that it had adopted an “outright constructive stance” on sterling in what it described as a “new era” for the currency as the Bank of England is expected to keep raising interest rates to keep a lid on inflation.
Kamakshya Trivedi, head of global foreign exchange at Goldman, said: “Essentially, we think that the same factors that acted as headwinds on sterling in 2022—mostly natural gas prices and the relative stance of Bank of England policy—have turned to tailwinds.”
The Bank of England is expected to raise interest rates for the twelfth consecutive time to 4.5% on Thursday.