BBH forecasts British Pound drop to 1.3100 on Dollar strength

The British Pound is expected to decline toward 1.3100 against the US Dollar, Brown Brothers Harriman said in a research note Friday, citing persistent US Dollar strength as the primary headwind for the sterling.

"The Dollar's momentum from elevated producer price data and heightened Middle East tensions continues to weigh on the Pound," the BBH research team said.

GBP/USD traded near 1.3240 in early European trading, implying a potential decline of more than 1 percent from current levels if the 1.3100 target is reached. The pair has already fallen about 0.3 percent this week as the Dollar Index climbed back above 99.50, supported by hotter-than-expected US Producer Price Index data released Thursday.

The 1.3100 level represents a key support zone last tested in early May, when the Pound briefly dipped below that threshold before rebounding. A break below that mark could open the path toward the 1.3000 psychological level, according to technical analysts.

BBH's bearish call on the Pound comes as markets reassess the relative monetary policy paths of the Federal Reserve and the Bank of England. The US central bank's cautious stance on rate cuts, reinforced by sticky inflation data, has provided a tailwind for the Dollar, while the BoE faces a more challenging growth outlook that may require earlier easing.

For Pound holders, the BBH forecast signals a cautious near-term outlook, with the 1.3100 level acting as the key line in the sand. Traders will watch next week's UK inflation data and the Fed's preferred inflation gauge, the core PCE price index, for the next directional catalyst.

This article is for informational purposes only and does not constitute investment advice.