Even though BoE lowered UK growth forecasts for the next three years, sterling appreciated further against the dollar on Wednesday, so the exchange rate is now up nearly 8 cents over the past month (1.57 vs. 1.49). Two factors seem to have driven sterling higher.
First, while expectations for interest rates have increased in the US, they have risen by more in the UK, so the differential between them has shrunk. Second, political uncertainty in the UK has reduced after the election of a majority Conservative government.
"Nevertheless, we forecast that sterling will weaken in the near future. Indeed, we expect it to depreciate from $1.57 now to $1.40 by years-end." said Capital Economics
