– Written by
Frank Davies
STORY LINK Pound to Dollar Forecast: AI Sell-Off Tests Dollar as GBP/USD Nears 1.34
The Pound to Dollar exchange rate (GBP/USD) held close to five-week highs around 1.3380 after briefly climbing above 1.3410, as renewed concerns over AI stocks undermined the Dollar’s traditional safe-haven appeal.
Pound Sterling remains supported by expectations of a November Bank of England rate hike, while falling US Treasury yields and reduced Federal Reserve tightening bets have limited Dollar demand.
GBP/USD Forecasts: Holds near Five-Week Highs
The Pound to Dollar (GBP/USD) exchange rate remained close to five-week highs at the end of the week after Sterling briefly climbed above 1.3410 before easing back towards 1.3380.
GBP/USD reached around 1.3418 on Thursday, its strongest level since mid-September, as the Dollar struggled to benefit from a sharp deterioration in global risk appetite.
According to MUFG; “The US has underperformed again overnight alongside the sell-off in Asian equity markets highlighting again that it is now trading more like a risk currency than a safe haven.”
UoB has identified scope for GBP/USD gains towards 1.3440, while Scotiabank remains constructive on the broader technical picture and sees potential for a move back towards the 1.3650/75 area.
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AI Jitters Challenge Dollar Safe-Haven Demand
Global risk conditions dominated trading during the second half of the week as another sell-off in technology shares increased doubts over the sustainability of the artificial-intelligence investment boom.
The Japanese Yen and Swiss Franc attracted the strongest defensive demand, while the Dollar failed to perform as reliably as a traditional safe haven.
US Treasury yields fell sharply as investors moved into government bonds and reduced expectations for further Federal Reserve tightening.
Chris Scicluna, head of economic research at Daiwa Capital Markets commented; “AI is making people nervous, as is oil and as is France, and obviously we have a slight degree of risk aversion in the market, which is benefiting Treasuries, marginally benefiting gilts, and obviously did so for JGBs overnight.”
ING noted that investors appear to be reducing exposure to technology shares and rotating towards more defensive sectors.
The bank commented; “The suspicion now is that global equity investors are starting to scale back their exposure to the tech sector and looking for more defensive plays in sectors like consumer staples, healthcare and utilities.”
It added that this trend could favour greater allocation towards European equities, where major indices have a lower technology weighting.
MUFG also highlighted the changing Dollar dynamic; “The US dollar has lost upward momentum amidst more risk-off trading conditions over the past week undermined in part by the paring back of investor optimism towards AI-related investments, and the scaling back of Fed rate hike expectations.”
BoE Expectations Continue to Support Sterling
Sterling has remained relatively resilient as markets continue to expect a Bank of England rate increase in November.
September UK inflation rose to 3.5%, while recent labour-market and business-activity data have strengthened the view that the economy can withstand somewhat tighter policy.
Friday’s flash UK composite PMI increased to 53.1 from 52.0 in September, comfortably beating expectations and reinforcing the picture of relatively resilient activity.
Markets are therefore close to fully pricing a 25-basis-point November increase and expect further tightening during 2027.
The Dollar side remains more uncertain.
A Reuters poll published this week found almost all economists expect the Federal Reserve to leave rates unchanged at its October meeting, with the next hike expected in December.
ING nevertheless cautioned against assuming broad Dollar weakness while US short-term yields remain elevated; “But until the rock-solid short-end of the US yield curve starts to buckle, it is hard to make the case that the dollar needs to fall across the board.”
Danske Bank also sees energy prices as an important source of Dollar support, with high oil and gas costs creating both inflation and growth risks for energy-importing economies.
For GBP/USD, the 1.3415-1.3440 area remains the immediate upside barrier.
A sustained break above this region would strengthen the case for a move towards 1.3500 and eventually Scotiabank’s 1.3650/75 target area.
On the downside, 1.3330-1.3350 should provide initial support.
For now, the Pound retains support from BoE tightening expectations, while the Dollar’s ability to benefit from renewed risk aversion remains an important test for the pair
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TAGS: Pound Dollar Forecasts
