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Global payments company: GBP may benefit from elections due in the second half of the year

2024-01-19

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Global payments company Argentex says 2024 will be marked by further resilience for the pound and could benefit from elections due in the second half of the year.

In a research report setting out forecasts and scenario analysis, Joe Tuckey, head of foreign exchange analysis at Argentex, said that the 2024 elections in the United Kingdom and the United States will have a significant impact on the foreign exchange market.

"In the UK, Labor's indication that they will integrate more closely into Europe is seen as a potential positive for the pound," he said. "With a general election approaching, possibly in the autumn, certain sterling-positive themes may emerge and be priced in," he added.

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For analysts, Trump's return could re-disturb the relative calm of the Biden era, and U.S. markets could become more volatile.

"Markets may become particularly concerned if Trump insists on withdrawing from NATO and withdrawing support for foreign wars, thereby putting more fiscal pressure on other economies," he explained.

Argentex's base-case GBP/USD forecast for 2024 suggests that the pound will continue to maintain its recent resilience, gradually rising as the dollar weakens.

The Bank of England will maintain a more dovish stance than the Fed, while economic data is likely to remain "flat" but in line with expectations for modest economic growth in 2024 of 0.5% to 1%.

"The UK will once again successfully avoid the annual doom and gloom narrative as falling interest rates, falling inflation and low unemployment continue to drag on the post-Brexit recovery," Tuckey said.

Argentex's base case forecasts GBP/USD in a range of 1.30-1.33.

However, if inflation remains higher in the UK, which could mean the Bank of England cuts interest rates later and to a smaller extent than some other G10 central banks, then a bullish scenario of 1.35-1.37 could emerge.

A pessimistic scenario could lead to 1.18-1.20. This scenario could involve a major economic slowdown and a bond sell-off as markets question election-related fiscal changes.

Regarding the outlook for the GBP/EUR exchange rate, Argentex believes that the broad fundamental drivers in both countries are likely to remain similar, with growth expectations ranging from +0.5% to 1%.

With deflation heading steadily toward 2%, the central bank is expected to cut interest rates through 2024. Economic data can be a complex picture, depending on employment, energy prices, consumer behavior and global demand themes.

"The Bank of England is leaning towards being less dovish and the ECB is likely to remain, while there could be an election rally later this year," Tuckey said.

Argentex expects GBP/EUR to trade in a range of 1.15-1.17, but if the 'sticky' inflation scenario mentioned above emerges, a bullish scenario of 1.18-1.19 is possible.

Another bullish scenario would see a new Labor government drive sterling higher amid "replacement" and "market-friendly" pricing, Tuckey said.

A pessimistic scenario would lead to 1.12-1.14 as the ECB is unable to deliver as many rate cuts as the market expects.

"The euro will strengthen as underperforming economies such as Germany start to outperform downturn expectations," Tuckey said.

The above information is provided by special analysts and is for reference only. CM Trade does not guarantee the accuracy, timeliness and completeness of the information content, so you should not place too much reliance on the information provided. CM Trade is not a company that provides financial advice, and only provides services of the nature of execution of orders. Readers are advised to seek relevant investment advice on their own. Please see our full disclaimer.

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Global payments company: GBP may benefit from elections due in the second half of the year

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