Pound to Dollar End of Week Forecast: Fresh One-month High Above 1.2760

March 8, 2024 - Written by John Cameron

STORY LINK Pound to Dollar End of Week Forecast: Fresh One-month High Above 1.2760

GBP/USD Edges Higher to Fresh 1-Month Highs, UK Growth Concerns Cap Gains

The dollar has continued to lose ground on Thursday, driven to an important extent by a further decline in bond yields.

The move was led by USD/JPY and, although the Pound has moved higher, it has underperformed other risk-orientated currencies with UK growth concerns still a significant element.

The Pound to Dollar (GBP/USD) exchange rate has edged to fresh 1-month highs just above 1.2760.

Short-term direction will be driven by Friday’s US jobs data with a soft release needed for GBP/USD to challenge key resistance around 1.2825.

HSBC maintains a downbeat stance on the Pound; “We think that the main driver of the likely weakness for the GBP is the slow but clear pivot by the BoE towards a more dovish stance.

After a lacklustre budget, the UK focus will return to the Bank of England and outlook for interest rates.

The budget had little overall impact. According to Danske Bank; “While the BoE takes fiscal policy measures announced as a given for its three-year forecast horizon, we do not see the budget to alter the outlook meaningfully for the BoE.”

Halifax reported that house prices increased 0.4% for February after a 1.2% increase the previous month, although this was below consensus forecasts of a 0.8% increase.

Prices increased 1.7% over the year from 2.3% previously.

Kim Kinnaird, Director, Halifax Mortgages commented; “While it is encouraging that we’ve seen growth in recent months, what happens next remains uncertain. Although lower mortgage rates, alongside expectations of Bank of England interest rate cuts this year, should help buyer confidence in the short term, the downward trend on rates is showing signs of fading.”

She added; “Even with growing wages and inflation falling back, raising a deposit and affording a sizeable mortgage remains challenging, especially for those looking to join the property ladder, so it remains a possibility that there could be a slowdown in the housing market this year.”

US data on Wednesday recorded a small decline in US job openings for January.

ING concentrated on the quit rate in the data. It noted; “It had been as high as 3% in 2022. This slowdown suggests that while there are still lots of vacancies out there, they aren't especially attractive and fewer and fewer people are interested in taking them.”

Initial jobless claims were unchanged at 217,000 in the latest week with continuing claims at 1.91mn from 1.90mn previously while layoffs increased for February.

The US employment report on Friday will trigger fresh volatility, especially after the huge gains in payrolls reported for January.

ING commented; “With the falling quits rate coupled with both the manufacturing and service sector ISM employment indices being in contraction territory, plus the ADP private employment report posting a sub-consensus 140,000 increase (and the seventh consecutive reading between 104-158,000) suggests that we must surely see a slowdown in nonfarm payrolls growth.”

ING added; “After 333,000 and 353,000 prints for December and January, respectively, economists are pencilling in a 200,000 forecast but given the propensity for official data to come in far hotter than survey and anecdotal evidence, confidence is low in this prediction.”

According to MUFG; “The exact timing of the first Fed rate cut remains unclear although Chair Powell later indicated that the hurdle for a rate cut appears to be relatively low when he stated “let’s see a little bit more data so we can become confident”.”

Shaun Osborne, chief currency strategist at Scotiabank expects dollar range trading in the short term.

From a longer-term perspective, he added; “If we're in a situation where instead of the soft landing, it's a no-landing scenario, that potentially reduces rate cut opportunities for the Fed quite significantly over the balance of this year, in which case the dollar probably stays relatively strong."

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TAGS: Pound Dollar Forecasts