Pound to Dollar Week Ahead Forecast: 1.30 in Nine Months say ING

March 17, 2024 - Written by David Woodsmith

STORY LINK Pound to Dollar Week Ahead Forecast: 1.30 in Nine Months say ING

Currency exchange strategists at ING see scope for the Pound to Dollar exchange rate (GBP/USD) to advance to 1.30 at the end of 2024 as the dollar loses ground.

RBC Capital Markets expects a retreat to 1.24 as the Pound is unable to make any headway.

Federal Reserve (Fed) and Bank of England (BoE) policy decisions will be crucial in the week ahead.

Markets will also be looking at the latest UK inflation data.

Neither the Fed nor Bank of England will make any changes to interest rates at these meetings, but forward guidance will be crucial.

Fed Chair Powell has been optimistic that the conditions would be in place for the central bank to consider a cut in rates relatively soon, but wanted confirmation that inflation was declining on a sustainable basis.

According to Nordea; “Since the Fed’s December meeting, the US economy has continued with a remarkably stronger performance than expected, and economic indicators suggest the uptick in activity will continue. Wage growth has moderated somewhat but the decline in inflation has stopped, mainly due to goods disinflation stopping.”

It added; “The latest two CPI and PPI figures are not reassuring that the disinflationary trend will continue, something that is a prerequisite for the Fed to lower rates. As such, we won’t be surprised if Chairman Powell’s press conference has a somewhat hawkish tone.

Wells Fargo took a similar view; “With payroll growth still solid and inflation proving to be a bit stickier recently, we suspect the FOMC will still be seeking greater confidence at the end of its meeting next week that inflation is headed back to 2% on a durable basis.”

The bank now expects a first rate cut in June compared with May previously.

The latest Fed interest rate forecasts will also be a significant element within the latest meeting.

At the last meeting, median forecasts were for three rate cuts in 2024.

According to Wells Fargo; “Our base case is that the median dot for 2024 will remain unchanged at 4.625%, but the risks are skewed toward a higher median given the distribution of the prior dots and the recent run of inflation data.”

Markets are still backing a rate cut in June, but markets are now pricing in only just over a 50% chance of a cut from near 70% the previous week.

Nordea expects that the first rate cut will only take place at the September meeting.

RBC has shifted its stance; “We had expected a modest deterioration in economic conditions to have been more evident by this point, which would have justified the Fed moving by more than implied by their December SEP forecasts. But that view has become untenable, with no real signs of cracks on the labor/growth fronts, a concerning CPI print in January, and no real relief in February.

RBC now sees three rate cuts in 2024 from five previously.

There are very strong expectations that the BoE will hold interest rates at 5.25% and reiterate that it is too early to consider a cut in rates.

According to ING; “Expect the Bank of England to use Thursday's decision to reiterate that rates need to stay restrictive for an extended period of time, a signal that it's too early to contemplate policy easing. We expect the first rate cut to come in August.”

HSBC notes the possibility of a shift in MPC voting; “Were one of the hawks to move into the centre-ground, it would likely see GBP weaken but it is not clear whether the recent evidence of slowing wage growth, somewhat softer than expected January inflation, and this drop in near-term inflation expectations will be enough to prompt such a change.

According to Westpac, looking at UK fundamentals; “there is arguably some upside risk for GBP/USD.”

It did, however, add; “Not only is the Bank of England unsure about when inflation will sustainably return to target, the economic and political headwinds the UK faces are long lasting.”

It expects these elements will limit Pound support.

Westpac forecasts GBP/USD at 1.29 at the end of 2024 and 1.31 at the end of 2025.

Looking at COT long Sterling positioning data, SocGen considers that the Pound is vulnerable to a correction; “It now exceeds 60k contracts and is near the high of 2023, which at the time triggered a market unwind, pushing down GBP. A repeat seems likely, as GBP/USD is heading towards 1.30 amid a similar positioning backdrop.”

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TAGS: Pound Dollar Forecasts