April 28, 2024 - Written by David Woodsmith
STORY LINK Pound to Dollar Week Ahead Forecast: "Further GBP Weakness in Coming Weeks"
Foreign exchange strategists at HSBC forecast the Pound to Dollar (GBP/USD) exchange rate to slide back below 1.24 in the near-term outlook.
According to the bank; “We look for further GBP weakness ahead in the coming weeks. We expect this USD strength to persist, albeit in a more grinding fashion over the next month with attendant downside for GBP-USD.”
It added; “We also see scope for independent GBP weakness given the more cautious pricing in the market around the likely timing of BoE easing.
HSBC added; “The May BoE meeting could be an important stage-setter for a possible June easing where only 10bp are priced in. We also see scope for rate cuts to be deeper by year-end than is currently priced into the market.”
The bank notes GBP/USD support levels at 1.2256, 1.2200 and 1.2144.
GBP/USD posted a net gain for the week, but failed to hold the 1.2500 level.
MUFG commented on the GBP/USD recovery; “With a BoE rate cut in June still a possibility we would be surprised to see much follow through from this GBP buying although the pick-up in growth in Europe is likely a factor that will curtail US dollar buying at stronger levels. Even moderately better growth in Europe will likely limit dollar appreciation going forward.”
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BoE expectations remained a key factor during the week and will become even more important ahead of the May 9th meeting.
Chief Economist Pill stated that there had been progress on inflation but added that; “the time for cutting Bank Rate remained some way off."
Pill’s comments dampened expectations that there will be majority support for a near-term rate cut and curbed bearish Pound sentiment.
The Pound also drew some support from equity markets during the week with the FTSE 100 index posting fresh record highs.
Federal Reserve guidance will be crucial at next week’s policy meeting.
Markets are now pricing in only just over a 10% chance of a June rate cut while the chances of a July cut have dipped to around 30%.
There was an element of divergence within the US data during the week.
According to the flash estimate, GDP growth slowed to an annualised rate of 1.6% for the first quarter from 3.4% previously and below consensus forecasts of 2.5%.
The PMI data was also weaker than expected with a slowdown in manufacturing and services-sector activity.
The survey also reported a decline in employment, contrary to reports from the monthly employment reports.
The inflation data, however, was stronger than expected with a core PCE prices reading of 3.7% compared with expectations of 3.4%.
JP Morgan commented; “On inflation, we reiterate our view that improving and broadening global economic growth raises the risk that inflation will be sustained and broaden as a problem for both central banks and markets.”
The data triggered fresh concerns over inflation trends, although there was also an element of concerns over the combination of stubborn inflation and weaker activity (stagflation).
According to MUFG; “There were plenty of reports citing stagflation concerns that could undermine confidence in the US if the data continues to slow. We are not in the camp of stagflation and still see US CPI moving lower but over the short-term if US activity weakens further the concerns over stagflation will likely increase.”
Berenberg commented; “We currently see no reason for the Fed to lower interest rates soon. The underlying fundamentals still point to a healthy economy, the labour market is tight, and the disinflation process stalled lately.”
MUFG also noted that the political footprint will grow and sees a potential push for a weaker dollar if Trump wins the November Presidential election. It commented; “Politico quotes some of Trump’s economic advisers as seriously studying ways to encourage other key countries to strengthen their own currencies or to face tariffs instead.”
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TAGS: Pound Dollar Forecasts
