Pound to Dollar Week Ahead Forecast: "Sterling Poised for Strength in April"

April 1, 2024 - Written by David Woodsmith

STORY LINK Pound to Dollar Week Ahead Forecast: "Sterling Poised for Strength in April"

Bank of America analysts notes positive calendar effects for the Pound Sterling in April

It added; “Supported by favorable carry trades and a benign risk environment, GBP is poised for strength in April, benefiting from seasonal trends. It sees scope for GBP/USD to strengthen to 1.30 in April.

ING has a year-end GBP/USD forecast of 1.30, but expects a struggle to move above this level.

Danske Bank sees scope for near-term GBP/USD support, but expects a slide to 1.18 on a 12-month view.

GBP/USD again tested support below 1.26 during the week, but regained this level as the FTSE 100 index posted 12-month highs.

Danske still sees scope for near-term Fed rate cuts; “We see room for markets to price in a higher probability of an early cut due to a significant uptick in labour supply, easing shortages, and expected lower wage sum growth. Lower global real rates and fewer positive economic surprises from the US indicate potential near-term USD weakness.”

On a longer-term view, Danske still expects tighter financial conditions will strengthen the dollar in global markets.

According to Danske; “We expect relative growth outlooks and broad central bank pricing to weigh on GBP.”

According to ING; “At its most recent press conference, Federal Reserve Chair, Jay Powell, made clear that the Fed is minded to cut rates. The Fed expects three cuts in 2024, we expect five starting in June.”

It noted; “Better activity data and sticky prices have provided support to US rates and the dollar through the early months of the year.”

Nevertheless, it added; “A Fed committed to cutting suggests a dollar bear trend now truly starts to emerge.”

Expectations of dollar weakness will come into major doubt if US inflation continues not to co-operate.

As far as Federal Reserve policy is concerned, Fed Governor Waller adopted a broadly hawkish stance in comments on Wednesday.

According to Waller, the Fed needs to see at least a couple of months of data to be sure that inflation is heading to 2% and that more progress is needed before supporting a rate cut.

In this context, he added that there was no rush to cut rates and the latest data suggests that fewer rate cuts are possible this year, especially as the latest data had been generally disappointing.

Following the comments, markets are now pricing in just under a 65% chance that the Fed will cut interest rates at the June policy meeting from 70% previously.

MUFG commented; “While the comments still appear consistent with the Fed delivering the first rate cut in June, they do highlight the risk that Fed could delay rate cuts into the second half of this year if inflation continues to prove stronger than expected in the coming months. It is one potential catalyst that could disrupt the current period of low volatility for major foreign exchange rates and encourage an even stronger US dollar.”

According to Nordea; “We still think it will be a sideways bumpy road for the USD in the coming months with largely synchronised rate cuts for major currencies such as the USD, EUR and GBP.

According to Credit Agricole; “We believe that any GBP gains would manifest themselves vs the EUR rather than the USD in 2024. Indeed, the Fed could disappoint while the should BoE largely meet market rate cut expectations, in a boost to the USD's rate appeal relative to the GBP. Moreover, growing risk aversion on the back of intensifying growth and political risk in the US could weigh on the risk-correlated GBP in Q424.

It forecasts GBP/USD at 1.25 at the end of 2024.

According to Westpac, GBP/USD can secure medium-term gains, but added; “In the interim, the visual shift in a less split MPC is weighing on GBP and continues to suggest a slide towards 1.2500-50, possibly even towards 1.23, though such a flush would be seen as a buying opportunity.”

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TAGS: Pound Dollar Forecasts