Pound Sterling to Dollar Forecast: GBP Near 3-Week Highs as USD Retreats

– Written by


David Woodsmith

STORY LINK Pound Sterling to Dollar Forecast: GBP Near 3-Week Highs as USD Retreats

The Pound to Dollar exchange rate (GBP/USD) has consolidated around the 1.3500 level after climbing to three-week highs as unexpectedly weak US employment data intensified doubts over further Federal Reserve tightening.

With the Dollar Index close to two-month lows, Sterling remains well placed to extend its recovery, although significant technical resistance around 1.3550 and continued safe-haven demand linked to the Iran conflict could limit gains.

GBP/USD Forecasts: Pound Sterling Near 3-Week Highs

The Pound to Dollar (GBP/USD) exchange rate hit 3-week highs just above 1.3500 on Friday after weaker than expected US data and has consolidated around 1.3500 on Monday with the dollar index close to 2-month lows. GBP/USD still has work to do to break key resistance levels.

Scotiabank commented; “The momentum indicator remains (marginally) in bullish territory, for now.” The bank pointed to strong resistance towards 1.3550.”

Economics and Middle East developments will continue to dominate markets. Oil prices edged higher on Monday and Rabobank commented; “While the strength of long USD positions suggests that conditions were likely ripe for a round of profit-taking, in RaboResearch’s view, the continuation of the war in Iran suggests that the USD sell off will be limited by safe haven demand.”

The US employment data recorded a headline decline in non-farm payrolls of 23,000 for July compared with consensus forecasts of an increase close to 85,000 while there were substantial downward revisions to the June and May data.

The unemployment rate did edge lower to 4.1% from 4.2%, but this was due to another decline in the participation rate as workers dropped out of the labour force.

ING commented; “the -20k payroll print was not the only concern. More than 100k of downward revisions leave average payroll growth at just 20k over the past three months, with health and social care still doing most of the heavy lifting.”

The bank still expects that the Fed will resist rate increases this year. The bank added; “Our dovish Fed call is strengthening, and so is our bearish bias on the dollar. Despite Friday’s repricing, 11bp are still priced in for September, 28bp for December and 40bp for April. There remains ample room for dovish repricing to harm the dollar if we are right about the Fed.”

MUFG noted a measured market reaction; “The muted yield drop must also be viewed in the context of the numerous hawkish communications from FOMC members.”

The latest US inflation data is due on Wednesday. Consensus forecasts are for the headline rate to edge lower to 3.4% from 3.5% with the core rate at 2.5% from 2.6%.

MUFG added; “another weaker than expected core CPI print (which would be the third month in a row) along with last week’s weaker jobs would certainly provide compelling ammunition for the doves on the FOMC although again we may not get a big market reaction this week either given the September data points lie ahead before the FOMC meeting.

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TAGS: Pound Dollar Forecasts