Wells Fargo - "The United Kingdom experienced a sharp depreciation of its currency during the GFC. Between its high in July 2007 and its low in March 2009, Britain’s real effective exchange rate fell more than 25 percent (Figure 7).4 Not only did sterling weaken significantly against the U.S. dollar during the GFC as investors moved into the safe-haven of the greenback, but the British pound also depreciated vis-à-vis the euro.5 This real exchange depreciation undoubtedly played a role in boosting real exports of British goods and services, which rose more than 6 percent in 2010 and nearly 5 percent in 2011. However, export growth has stalled over the past year. Although the real exchange rate has trended a bit higher over the past three years—not only has the nominal value of the British pound made up some lost ground but inflation has generally been higher in the United Kingdom than in most of the country’s major trading partners—the renewed downturn in the Eurozone has had a depressing effect on British exports.
Looking forward, we project that the greenback will strengthen modestly vis-à-vis sterling in the quarters ahead. Rates of return on U.S. assets likely will be higher than returns in the United Kingdom due to superior growth prospects in the United States. That said, we do not look for runaway dollar strength versus sterling either. Although the Bank of England will not be in a position to tighten monetary policy anytime soon, U.S. monetary policy probably will remain extraordinarily accommodative for the foreseeable future as well. Rather, we look for the dollar to grind higher vis-à-vis the British pound over the next few quarters."