What's next as the British pound hits its highest in more than three years?

The British pound is hovering astatine its highest level successful much than 3 years — and analysts are divided connected the imaginable for further upside.

Britain's currency was past seen trading astir the $1.36 people connected Wednesday greeting successful London.

It marked a flimsy driblet from Tuesday, erstwhile sterling deed its highest level since January 2022.

So acold this year, the lb has surged 8.7% against the greenback.

GBP/USD price

According to Janet Mui, caput of marketplace investigation astatine RBC Brewin Dolphin, overmuch of the pound's upward trajectory is really much to bash with underlying dollar weakness than religion successful sterling itself.

"The comparative spot of the lb has been much of a anemic U.S. dollar communicative this year," she told CNBC by email connected Wednesday.

U.S. President Donald Trump's unpredictable commercialized policies shook assurance successful American assets earlier this year, which successful crook has sparked concerns successful markets astir de-dollarization.

Paul Jackson, planetary caput of plus allocation probe astatine Invesco, said sterling was connected a betterment travel from the "extreme low" seen successful the aftermath of erstwhile British Prime Minister Liz Truss's so-called mini budget, which sparked a terrible merchantability off of the lb and U.K. authorities bonds successful 2022.

He agreed, however, that overmuch of the question this twelvemonth was attributable to dollar weakness, pointing retired sterling's simultaneous depreciation against the euro.  

"I would expect that signifier to proceed successful the future, with the dollar weakening on with the US system (and capitalist doubts astir US fiscal and tariff policies), portion the euro could fortify connected optimism astir the implications of the coming fiscal boost (especially successful Germany)," Invesco's Jackson said.

He argued that the ECB had apt completed astir of its monetary easing for the existent cycle, whereas the Bank of England and the Federal Reserve "have a batch of catching up to do."

"In 12 months, I would expect GBPUSD to beryllium astir 1.40 and GBPEUR to beryllium astir 1.15 (currently 1.17)," Jackson added.

Jackson's forecast represents a astir 2.9% premium from existent speech rates against the dollar.

RBC Brewin Dolphin's Mui suggested that successful the coming months, the outlook for the British lb is not overly compelling — but noted that geopolitical developments could catalyze further upward movements successful the longer term.

"In the near-term, further upside for the lb whitethorn beryllium constricted owed to softer UK economical momentum and much scope for the Bank of England to chopped rates," she said.

"Looking ahead, 1 imaginable catalyst for the lb could beryllium improved relations with the EU, peculiarly if it translates into much factual enactment implicit time."

Brian Mangwiro, an concern manager with the multi plus radical astatine Barings, took a much pessimistic view.

"We are bearish GBP successful the mean term. We would forecast EURGBP astatine 0.875 and GBPUSD astatine 1.30 successful [six months]," helium told CNBC by email connected Wednesday.

He argued that the macroeconomic backdrop does not warrant sterling's show against the greenback this year, attributing it alternatively to a reflection of a post-liberation time sell-off of the U.S. dollar.

Dollar scale twelvemonth to date.

"Markets had been overly bearish connected the UK pursuing Chancellor Reeves' Budget," helium added. "Consequently, affirmative information surprises became supportive to GBP. However, we proceed to expect UK economical maturation and ostentation to slow; signs are already showing, which the Bank of England is besides acknowledging. This supports further BoE complaint cuts, and yet weighs connected the pound."

Mangwiro besides noted that successful his view, de-dollarization risks seemed "over-blown."

"Sentiment volition apt reverse arsenic US maturation outlook rebounds and firm net stay resilient," helium said. "Along with existent utmost abbreviated USD positioning, this should enactment a USD rebound, dragging Cable lower."