Latest GBP News: Long-term Concerns Hidden Behind Year-End Rebound Glory

The British pound faces a rare opportunity to rise at the end of the year. Several international financial institutions have differing views on the future trend of the pound, with short-term optimism contrasting sharply with long-term pessimism. For investors paying attention to the latest news on the pound, understanding these conflicting market signals is especially important.

GBP/USD Rebounds from Lows, Euro Weakens and Adds to Pressure

During the year-end period, the GBP/USD performed strongly, appreciating by 1.08%, reaching a high of 1.3350, the highest in a month. Meanwhile, the EUR/GBP declined by 0.63% to 0.8737, also hitting a one-month low.

This rebound in the pound is driven by multiple factors. In the U.S., weak November ADP employment data led the market to lower expectations for further Federal Reserve rate hikes. Additionally, President Trump’s comments on Fed Chair nominations further reinforced expectations of a rate cut cycle, reducing the dollar’s attractiveness and creating room for the pound to appreciate.

In the UK, the government’s announced budget somewhat alleviated market concerns over UK debt. Ebury strategists noted that the budget’s release removed uncertainty, providing a breathing space for the pound’s late-year rebound.

Central Bank Rate Cuts and Economic Growth Outlook Provide Short-Term Support

The OECD recently released a report providing additional support for the pound. The organization expects the Bank of England to cut rates twice before June next year, ultimately lowering the benchmark rate to 3.5%, marking the end of the easing cycle.

Meanwhile, the OECD has upgraded its UK economic growth forecasts. It raised the 2026 growth rate from 1% in September to 1.2%, and predicts 2027 growth will reach 1.3%. UK Chancellor Rishi Sunak welcomed this upward revision and recently publicly stated that UK economic growth may surpass market expectations.

These positive signals have provided short-term support for the pound, enabling it to rebound from lows.

Goldman Sachs and Deutsche Bank Warn of Structural Long-Term Pressures on GBP

However, top global investment banks are not optimistic about the pound’s long-term prospects. Deutsche Bank stated that the pound remains in trouble. The bank pointed out that UK spending could increase significantly over the next two years, followed by necessary austerity measures. This structural issue suggests that the UK’s fiscal dilemma will persist long-term, with negative news likely to continue.

Goldman Sachs shares a similarly pessimistic view. The bank believes that fiscal constraints will remain the main challenge for the pound, especially relative to other G-10 currencies. Goldman further noted that risks in the UK labor market are intensifying, which will increase pressure on the central bank to cut rates.

Goldman summarized the pound’s predicament in one sentence: a combination of fiscal tightening and monetary easing will negatively impact the pound, especially when compared to other European currencies.

Investment Banks Raise EUR/GBP Forecasts, Send Clear Signals

To translate this long-term pessimism into specific forecasts, Goldman Sachs has raised its EUR/GBP outlook. The bank expects the euro to rise to 0.89 in three months, 0.90 in six months, and further to 0.92 in one year. This gradual appreciation indicates that Goldman believes the pound will face ongoing depreciation pressures over the next year.

For traders following the latest news on the pound, this forecast sends a clear signal: after a short-term rebound, the long-term trend may turn downward. The UK’s fiscal challenges and the central bank’s easing cycle will continue to weigh on the pound, especially relative to currencies of other developed economies like the euro.