The Pound to Dollar exchange rate (GBP/USD) has hit an 11-week high just above 1.28, but CIBC expects that the dollar will hold firm this year while three Bank of England rate cuts will undermine the Pound.

After a retreat to 1.25, the bank expects a gradual recovery to 1.27 at the end of this year with a limited advance to 1.31 at the end of 2025 as the dollar finally loses ground.

CIBC is confident that the Bank of England (BoE) will cut interest rates in August and expects two further cuts in the fourth quarter of 2024.

With markets pricing in less than a 50% chance of an August move, CIBC sees scope for the Pound to weaken.

Looking at the political situation, CIBC considers that markets to not see a Labour Party victory as a threat to the Pound.

It does expect Pound volatility will increase if opinion polls tighten as investors could take fright over increased uncertainty which would potentially undermine the Pound.

The bank also considers that evidence of a weaker economy will undermine the Pound as traders drop long positions.

In the near term, CIBC still expects that the US economy will out-perform other G10 economies with solid dollar buying on dips.

Over the longer term it expects this narrative will unwind gradually with the dollar losing ground.