BRITISH

POUND
FORECAST:
Q2, 2024
NICHOLAS CAWLEY , SENIOR STRATEGIST
BRITISH POUND FORECAST: Q2, 2024

DailyFX Research Team

Table of Contents
British Pound Q2 Forecast: Will the Bank of England Join the Q2 Rate Cutting Club? ......................2

British Pound Fundamental Outlook .......................................................................................................... 2

Inflation is Forecast to Meet Target in the Months Ahead ...................................................................... 2

UK Growth Remains Tepid, Jobs Market Remains Tight ......................................................................... 3

British Pound Q2 Technical Outlook – GBP/USD, EUR/GBP, and GBP/JPY ......................................5

GBP/USD...................................................................................................................................................... 5

EUR/GBP ...................................................................................................................................................... 6

GBP/JPY ...................................................................................................................................................... 7

Disclaimer ......................................................................................................................................9

1
www.dailyfx.com
BRITISH POUND FORECAST: Q2, 2024

DailyFX Research Team

British Pound Q1 Forecast: Will the Bank of England

Join the Q2 Rate Cutting Club?

British Pound Fundamental Outlook

The Bank of England’s Monetary Policy Committee took a dovish turn at their latest policy meeting,
sparking discussion that the UK central bank may bring forward its first interest rate cut from August
to June. Both the Federal Reserve and the European Central Bank are seen kick-starting their rate-
cutting program in June, and if the BoE join in, traders may have to re-think their Q2 outlook for all
three currencies.

Inflation is Forecast to Meet Target in the Months Ahead

UK inflation continues to move and is likely to hit the central bank’s target in the coming months.
According to the BoE, annual headline inflation is ‘projected to fall to slightly below 2% in 2024 Q2’,
before moving marginally higher in Q3 and Q4. UK inflation has fallen sharply after hitting a multi-
decade high of 11.1% in October 2022 and is now back at levels – 3.4% - last seen in September 2021.
The BoE has remained steadfast during this period, signalling that UK price pressures must be
tamped down in a sustainable manner.

UK Inflation

Source: Office for National Statics

2
www.dailyfx.com
BRITISH POUND FORECAST: Q2, 2024

DailyFX Research Team

Recent comments from Governor Andrew Bailey suggest that the BoE now sees the economy ‘moving
in the right direction’ and that he is ’comfortable’ with market rate cut forecasts. The market
expectation of the first UK rate cut has now been pushed forward to the June 20th BoE meeting,
bringing it in line with Fed and ECB rate cut forecasts. The markets are also fully pricing-in three
quarter-point rate cuts this year.

BOE Probability Distribution

Source: Refinitiv, Prepared by Nick Cawley

UK Growth Remains Tepid, Jobs Market Remains Tight

The UK economy remains weak and rate cuts will be welcomed across a range of sectors. The latest
ONS data showed that the UK economy entered a technical recession in Q4 2023. The British
economy contracted by 0.3% in the final quarter of last year, following a 0.1% contraction in Q3.
Looking at 2023 as a whole, the economy grew by a miserly 0.1%. The recent Spring Budget is forecast
to boost GDP by around a quarter of one percentage point, welcome but domestic growth needs
further drivers.

UK wage growth remains firm although wages are growing at a slightly slower rate. Average earnings
(ex-bonus) rose by 6.1% in January, sharply higher than the recent UK inflation figure of 3.4%. leaving

3
www.dailyfx.com
BRITISH POUND FORECAST: Q2, 2024

DailyFX Research Team

the UK consumer with more in their pockets. The jobs market remains robust with unemployment at
3.9%, while economic activity (aged 16 to 64) is picking up and remains above pre-pandemic levels.

With a healthy economic backdrop of rapidly falling inflation, a stagnant to marginally weaker jobs
market, and an economy that needs a boost, the Bank of England is right to set forward a set of rate
cuts this year, starting at the June 20th meeting.

4
www.dailyfx.com
BRITISH POUND FORECAST: Q2, 2024

DailyFX Research Team

British Pound Q2 Technical Outlook – GBP/USD,

EUR/GBP, and GBP/JPY

The British Pound has started the process of re-pricing against a range of currencies after the Bank
of England’s shift in tone. Ahead of the March meeting, financial markets had pencilled in the first UK
rate in mid-Q3 and priced Sterling-pairs accordingly. The shift forward to the June MPC meeting has
seen Sterling fall and this is likely to continue in the short-term. Further out, Sterling will likely stabilise
against the US dollar and the Euro, while moves against the Japanese Yen will be dictated by the Bank
of Japan.

GBP/USD
GBP/USD is back in a long-running consolidation zone that started at the beginning of November last
year. The move higher to 1.2900 was quickly retraced and the BoE re-pricing sent cable back below
1.2600. A few important technical indicators to note on either side of 1.2600, the 38.2% Fibonacci
retracement at 1.2628 and the 200-day simple moving average, currently at 1.2591. Both need noting
as GBP/USD tries to find a balance. If GBP/USD continues to move lower, further down big figure
support is seen at 1.2500 ahead of the 50% Fib retracement at 1.2470. If we break below here, then
sub-1.24 levels will come under pressure. Any move higher will find resistance at 1.2742 and the
1.2800 to 1.2825 area. The recent trading zone, highlighted on the chart, may see a short-term
downside break but overall is likely to hold for the next two to three months.

5
www.dailyfx.com
BRITISH POUND FORECAST: Q2, 2024

DailyFX Research Team

GBP/USD Daily Price Chart

Source: TradingView, Prepared by Nick Cawley

EUR/GBP
EUR/GBP is another pair that has been trading in a defined range over most of the first quarter.
Support around 0.8500 has held firm and promoted a sharp rebound during its two tests, while the
0.8550 area has seen a variety of highs and lows printed on either side. As we write, multi-month
resistance is being broken due to a current bout of Sterling weakness, and the 200-day sma at 0.8606
and a prior set of highs around 0.8620 is set to come under pressure soon. In the short term a move
above 0.8620 may well happen but with the CCI indicator showing the market in extremely overbought
territory, a period of consolidation is likely. While the path of least resistance remains pointed higher,
a move substantially higher - above 0.8700 - will struggle for traction. EUR/GBP looks set to trade
higher in Q2, but not noticeably.

6
www.dailyfx.com
BRITISH POUND FORECAST: Q2, 2024

DailyFX Research Team

EUR/GBP Daily Price Chart

Source: TradingView, Prepared by Nick Cawley

GBP/JPY
The technical outlook for GBP/JPY is different from GBP/USD and EUR/GBP and potential moves
may be more volatile in the weeks ahead. GBP/JPY has been in a strong uptrend since the start of
2023 with dual drivers of ongoing Yen weakness and bouts of Sterling strength. This trend may soon
run out of steam as the BoE eyes lower rates in the coming months while the Bank of Japan has just
raised interest rates, albeit by just 10 basis points. From a technical angle, GBP/JPY remains pointed
higher with the pair continuing to make a series of higher lows and higher highs, while GBP/JPY also
trades above all three simple moving averages. For GBP/JPY to turn negative, a break below the
recent higher low at 188 is needed. This move would also take out the 20- and 50-day smas. A break
lower would then leave the mid-186 area and 184 as the next targets.

7
www.dailyfx.com
BRITISH POUND FORECAST: Q2, 2024

DailyFX Research Team

GBP/JPY Daily Price Chart

Source: TradingView, Prepared by Nick Cawley

8
www.dailyfx.com
BRITISH POUND FORECAST: Q2, 2024

DailyFX Research Team

Disclaimer
DailyFX Market Opinions

Any opinions, news, research, analyses, prices, or other information contained in this report is provided as
general market commentary and does not constitute investment advice. DailyFX will not accept liability for any
loss or damage, including without limitation to, any loss of profit, which may arise directly or indirectly from use
of or reliance on such information.

Accuracy of Information

The content in this report is subject to change at any time without notice and is provided for the sole purpose
of assisting traders to make independent investment decisions. DailyFX has taken reasonable measures to
ensure the accuracy of the information in the report, however, does not guarantee its accuracy, and will not
accept liability for any loss or damage which may arise directly or indirectly from the content or your inability to
access the website, for any delay in or failure of the transmission or the receipt of any instruction or notifications
sent through this website.

Distribution

This report is not intended for distribution, or use by, any person in any country where such distribution or use
would be contrary to local law or regulation. None of the services or investments referred to in this report are
available to persons residing in any country where the provision of such services or investments would be
contrary to local law or regulation. It is the responsibility of visitors to this website to ascertain the terms of and
comply with any local law or regulation to which they are subject.

High Risk Investment

Trading in financial markets, foreign exchange, indices and commodities on margin carries a high level of risk
and may not be suitable for all investors. The high degree of leverage can work against you as well as for you.
Before deciding to trade in financial markets, foreign exchange, indices and commodities, you should carefully
consider your investment objectives, level of experience, and risk appetite. The possibility exists that you could
sustain losses in excess of your initial investment. You should be aware of all the risks associated with financial
markets, foreign exchange, indices and commodities trading and seek advice from an independent financial
advisor if you have any doubts.

9
www.dailyfx.com