The British Pound dominated as the top-performing major currency in 2023 until August, when it became evident that the slowing inflation would eliminate the necessity for the Bank of England to raise interest rates to the previously implied 6.5%.

The anticipated deceleration in UK inflation materialized, reaching its peak with the December release showing a substantial slowdown in November. Consequently, markets have heightened their expectations for rate cuts, causing the Pound to rank as the second-worst performer in the G10 over the past month. Despite this recent decline, the UK currency maintains its position as the second-best performer in the G10 for the entirety of 2023, with only a few trading days left.

Looking ahead to 2024, the focal point for currencies will be the timing and magnitude of central bank rate cuts. If the Bank of England initiates cuts before its counterparts, the Pound may face challenges. However, delaying the cuts could allow UK yields to outperform, potentially leading to a resurgence in the Pound's value.

According to NatWest, the British Pound is expected to steadily appreciate against the Euro and Dollar until around the third quarter of 2024, at which point gains may recede as the Bank of England implements interest rate reductions.

TD Securities anticipates the first cut from the Bank of England in May, while the Federal Reserve and the European Central Bank are forecasted to follow suit in June. If the Bank of England leads the rate-cutting cycle, Pound Sterling could experience pressure, reflecting a faster decline in UK bond yields compared to those of the Eurozone and the U.S.

Projections for exchange rates indicate that the Pound to Dollar exchange rate is expected to be 1.24 by the end of March, 1.27 by the end of June, 1.31 by the end of September, and 1.30 by the end of the year. The Euro to Pound rate is projected to be 0.87, 0.85, 0.87, and 0.88 at these respective time points, resulting in a Pound to Euro profile of 1.15, 1.18, 1.15, and 1.14.