Banks get bullish on the British pound despite the possibility of an imminent snapback

LONDON — With sterling as one of the best performing major currencies so far this year, analysts at various investment banks believe that the British pound still has more room to run, despite the Bank of England likely cutting interest rates in the near term.

In a recent research note, experts at Goldman Sachs were upbeat on the pound, commenting that sterling "tops the list" in the G-10 basket of major currency crosses. The analysts are sticking with their bet that sterling will rise against the dollar, with a target of 1.31. The pound-dollar cross was trading near 1.28 on Wednesday morning.

UBS shared a similar sentiment, with analysts saying the U.K. "may have flipped to being the most stable political story in G-10 from the exact opposite end of the spectrum," following elections in early June that delivered a comprehensive victory for the opposition Labour Party. The faction assumed governance under Keir Starmer's leadership earlier this month.

"Combined with still-high rates [this] could attract capital flows into GBP after many years of being a structural sell," the UBS analysts added.

Rabobank's Head of FX Strategy Jane Foley meanwhile said that the pound "will continue to edge higher in the months ahead on hopes that investment growth can recover from a very low base."

She added, "The tone of many of the policies announced by the new Labour government in recent days are market friendly ... The appearance of order in the U.K. government coupled with an expectation of a warmer relationship with the EU should provide for some optimism."

Sterling suffered a stormy period in September 2022, when then-Prime Minister Liz Truss and her Chancellor Kwasi Kwarteng presented an unscheduled fiscal announcement. They ignored the