Pound to Dollar Outlook: Fifth Time Lucky for GBP/USD Break of 1.2700?

March 5, 2024 - Written by David Woodsmith

STORY LINK Pound to Dollar Outlook: Fifth Time Lucky for GBP/USD Break of 1.2700?

Pound Sterling has edged higher on Monday while the US Dollar has lost some ground against European currencies.

The Pound to Dollar exchange rate (GBP/USD) has moved to test 1-week highs at the 1.2700 level after the New York open.

GBP/USD has already tested the 1.2700 level four times in the last 10 days without being able to make a breakthrough.

Scotiabank commented; “A clear and sustained push through 1.2710 should see gains extend a little more towards the recent range highs at 1.2775/00.”

Monex FX Trader Helen Given commented; "FX markets are - once again - operating with an abundance of caution ahead of lots of new info this week.”

Fed Chair Powell will testify to Congress on Wednesday and Thursday while the latest US employment report will be released on Friday.

Given added; "No one wants to get stung on any surprise, so I'd be surprised if flows don't remain muted in the front half of this week."

UK Chancellor Hunt will release the UK budget on Wednesday.

Lloyds Bank noted the political pressure for tax cuts and added; “the Budget is likely to be seen as one of the last opportunities for the Conservatives to narrow the polling gap with Labour.”

The government has tended to play down the potential for significant tax cuts, especially after the Office for Budget Responsibility (OBR) indicated that there was less than expected fiscal headroom.

The market stance on the government’s stance will be a key element.

According to MUFG the focus could be interest rate implications; “With less fiscal room for manoeuvre, it is unlikely that the government’s budget will significantly impact the performance of the UK economy in the year ahead. At the margin, it makes it slightly more likely that the BoE could begin to cut rates sooner in June rather than waiting until August which is a negative development for the pound.”

Scotiabank focussed more on credibility; “Some offsetting revenue “enhancements” will have to be part of the budget, with an excessive loosening of fiscal policy possibly complicating the BoE’s drive to restore price stability and lower rates in the months ahead. Sterling may reflect a modest relief rally if Hunt delivers credible budget.”

As far as US the US labour-market data is concerned, consensus forecasts are for an increase of around 190,000 in non-farm payrolls for February.

The importance of the data has been magnified by January’s data which recorded a payrolls surge of 353,000.

As well as the latest data, any revisions to January will be potentially important.

HSBC noted; “In the US, the February labour market data will be key for the Fed’s thinking about when to start trimming rates. The labour market is expected to sustain its strength from January, with nonfarm payrolls likely to increase by 200k, resulting in the unemployment rate remaining level at 3.7%. Average hourly earnings are projected to rise moderately at a pace of 0.2% m-o-m, translating to 4.4% y-o-y growth.”

ING commented; “Investors have been forced to an upward revision on the US labour market, although a return to the 200k area would put the series on a more sustainable trend and more consistent with expectations of summer cuts by the Fed.”

MUFG added; “Market expectations for Fed rate cuts would be further challenged if the US labour market continues to remain strong after last month’s blow out report for January, and could inject renewed upward momentum into the US dollar.

Scotiabank’s Shaun Osborne expects the dollar to drift weaker; “DXY gains stalled around (just a little above) the 61.8% retracement resistance of the late 2024 decline on the one (technical) hand while there have been some signs of slowing US activity on the (fundamental) other.”

He added; “All else equal, I think the USD will struggle to improve significantly from current levels and that downside risks are starting to strengthen as the quarter winds down.”

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TAGS: Pound Dollar Forecasts