U.S. dollar action

However, given the market’s general acceptance that the tightening cycle is likely over in Britain, action in the sterling may, at least in the short-term, be driven by the direction of the U.S. dollar. “As opposed to developments in the UK, the key hinge point for the pound is the dollar,” Lynch says.

Thomson Financial’s Rogers expects the pound to test the $1.88/1.90 area before the year is over.

“I don’t think the dollar sell-off is over yet,” he explains.

While Rogers is upbeat on the outlook for the pound, he does note that recent gains in the sterling have not kept pace with euro and Swiss franc strength.

“Because rates are likely on hold, it is definitely holding the pound back from making stellar gains,” he explains.