The British pound has been rising strongly recently. In early January, it surged to 1.3562, hitting a new high within the year. Over the past two months, it has gained more than 4%, far outperforming the euro. It looks like optimistic sentiment about forecasts for the British pound is building.

The logic behind it actually comes down to three points: the budget has boosted confidence, the central bank is not in too much of a rush to cut interest rates, and the U.S. dollar is also weakening. In particular, the Bank of England’s “hawkish” rate cut in December suggests that the pace of rate cuts may slow down, which is good for the British pound. Now, the market expects the Fed to cut rates twice in 2026, while the Bank of England will cut only once—so the yield spread is there to be seen.

But the problem is that institutional views on forecasts for the British pound’s trend are starting to diverge. JPMorgan is more pessimistic, saying that even though the economy remains resilient, twin deficits and political risk are still major issues. It expects the British pound to rise first and then fall, with a year-end target of 1.36. Bank of America is more bullish, believing that the risks from the budget have been removed and that policy-driven momentum will lead to a corrective rally, with a target price of 1.45. Citigroup is the most pessimistic, forecasting that the May local elections will intensify uncertainty, and that in the second half of the year the central bank will accelerate easing, pushing the British pound down to 1.22.

So, the key now is whether the political front will truly end up being a drag, and the crucial factor for forecasts on the British pound still lies in domestic conditions in the UK.