The BoE's interest rate policy is "key" to the outlook for GBP/USD and other Pound Sterling duos in 2024.

GBP/USD trading activity is still quite busy even though the market has entered the year-end holiday season. Sterling briefly breached the 1.2800 threshold in trading on Thursday (28/December) but slipped to the 1.2760s at the time of writing. What are the prospects for GBP/USD in 2024?

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The Pound Sterling is generally one of the best-performing G10 currencies throughout 2023. GBP/USD is at its highest level in five months. However, Sterling is starting to lose momentum against the Euro and Japanese Yen.

EUR/GBP has been stuck above the 0.88 threshold for three consecutive months. GBP/JPY during December moved away from its multi-year high of 188.65 towards 178.00.

The consensus is that Pound Sterling's performance in 2024 will be determined by the timing and scale of Bank of England (BoE) rate cuts. If UK inflation declines faster and the BoE cuts rates earlier than other central banks, Sterling will slump. Otherwise, Sterling has the potential to rally further.

Experts at NatWest Markets think that Sterling will remain strong against the Euro and US Dollar until the third quarter of 2024, then weaken towards the end of the year due to the BoE rate cut. The assumption is that the UK will have the highest interest rates among the G10 countries and only start lowering them towards the end of the year.

"The yield gap is poised to support Sterling," said Paul Robson, Head of FX Strategy for EMEA at NatWest Markets.

NatWest projects GBP/USD to circulate at 1.24 by end-March, 1.27 by end-June, 1.31 by end-September, and 1.30 by year-end 2024. Meanwhile, EUR/GBP is likely to reach 0.87, 0.85, 0.87, and 0.88 in the same time frame.

Goldman Sachs is more optimistic. Goldman Sachs' GBP/USD projection reaches 1.28 in the next three months, 1.30 in the next six months, and 1.35 in the next twelve months.

Some other leading multinational financial institutions are more bearish on Sterling. Morgan Stanley is one of them.

"We are cautious on EUR and emerging market currencies, and (are) most negative on GBP," said Matthew Hornbach, strategist at Morgan Stanley.

Morgan Stanley expects GBP/USD to fall to 1.14 by mid-2024, then crawl to just 1.15 by the end of the year. This is because they believe the BoE will cut interest rates more quickly and aggressively than the market currently expects.