The bank predicts the pound will reach $1.35 by year-end and $1.41 by the close of 2025. This optimistic outlook is fuelled by expectations of “above trend growth” in the UK economy and a slower pace of interest rate cuts compared to the US Federal Reserve and European Central Bank.

Currently trading around $1.314, the pound has already gained 3.2% against the dollar this year. Market sentiment suggests the Bank of England will be more cautious in easing monetary policy than its US and European counterparts.

While traders anticipate rate cuts from the Fed and ECB this month, the Bank of England is widely expected to maintain its base rate at 5% in its September meeting. A possible tightening of the UK labour market further supports the view that UK policymakers will opt for a more gradual approach to rate reductions, City AM reports.

Bank of America forecasts the UK’s next rate cut in November, followed by a series of cuts in 2025 and 2026, ultimately resulting in a 3.25% base rate by mid-2026. The US lender also predicts the pound will strengthen against the euro.