Pound Sterling forecasts have been raised by MUFG investment bank analysts as Covid cases decline in the UK, and prospects of a rate hike in 2022 increase.

As part of a monthly currency forecast update, analysts see the Pound-to-Dollar exchange rate edging back up towards 1.40 in Q4.

This comes during a short-term appreciation in Pound valuations against the Dollar. GBP/USD rallied from 1.3572 on 20 July to the current 1.39 mark.

"The GBP’s impressive performance stands out as other high beta currencies have not performed as well amidst more challenging conditions for risk assets in the near-term reflecting ongoing concerns over slowing global growth and tightening liquidity conditions," stated Lee Hardman, Currency Analyst with MUFG in London.

"The recent outperformance of the GBP reflects building optimism that the COVID pandemic could largely be over by late September/October in the UK.

"We believe the primary factor here is the evidence in the daily COVID infection rates that indicate the UK may be approaching ‘herd immunity’ that may confirm the template for emerging from the COVID pandemic on a more permanent basis," Hardman added.

During Q4 this year, MUFG forecast a GBP/USD range of between 1.3700 and 1.4600, with a point forecast set at 1.44, reports Pound Sterling Live.

This range edges up to 1.3700-1.4700 in Q1 2022, with a point forecast set at 1.4290.

All eyes are now on the Bank of England’s Monetary Policy Report on Thursday, during which confirmation of a rate hike is expected around August next year.

Hardman added that the central bank’s meeting will permit policymakers to endorse current money market rates.

"The favourable macro backdrop helped by the early evidence of being in the final stage of the pandemic will likely be illustrated in the BoE’s updated MPR that will suggest a 2022 rate hike, which we see as GBP supportive from here," he added.