Pound to Dollar Week Ahead Forecast: Seasonal Trends in April to Support Sterling

April 7, 2024 - Written by Frank Davies

STORY LINK Pound to Dollar Week Ahead Forecast: Seasonal Trends in April to Support Sterling

Foreign exchange strategists at Nordea expect that the Pound to Dollar exchange rate (GBP/USD) will secure a limited advance to 1.29 at the end of 2024.

MUFG and NatWest have similar forecasts of 1.30, but Danske Bank’s most recent update continued to forecast 1.18 at the end of 2024.

Despite fluctuations during the week amid shifting US data releases, GBP/USD was little changed for the week just above 1.26.

The latest US services PMI data was weaker than expected with an easing of inflation pressures.

The employment report, however, was again stronger than expected with the headline payrolls figure stronger than expected for the fifth successive month.

US non-farm payrolls increased 303,000 for March compared with consensus forecasts of an increase around 210,000.

According to the household survey, there was a strong increase in the number of employed of close to 500,000 while the unemployment rate edged lower to 3.8% from 3.9%.

According to Commerzbank; “All in all, a first rate cut at the June meeting, which we still expect, is becoming less likely. The timing of the first cut is likely to be determined primarily by the further development of inflation.”

MUFG expects that the US economy will come under pressure; “As the economy shows clearer signs of weakening over the coming months, we expect rate cut expectations to increase and prompt further US dollar weakness going forward.”

NatWest expects a shift in dynamics with the US losing exceptionalism. According to the bank; “NatWest economists expect falling inflation to provide scope for the Fed to cut in June. Fed cutting cycles can be fairly steep once they start and this may weigh on the USD if history repeats itself.”

NatWest summarises; “The outlook is still one of modest gains for GBP/USD, primarily on our expectations that the Fed cuts far more aggressively than the BoE this year. The USD is also assessed to be richly valued from a long-term perspective. Picking the point of peak optimism over US economic optimism and peak global pessimism will define the path GBP/USD through the year.”

It did, however, add; The USD’s safe-haven, global reserve currency status may leave it more supported even as the Fed cuts.”

According to Danske; “We expect weaker UK data to increasingly weigh on GBP the coming months.”

MUFG has shifted its Bank of England rate-cut timing due to increased confidence in the inflation outlook; “. We maintain our view that the BoE will cut by a total of 100bps in 2024, but have brought forward the starting point to June following the communications from Governor Bailey in March.”

MUFG sees scope for the UK economy to out-perform relatively to the US. It added; “We expect the pound to strengthen gradually versus the US dollar as the US economy slows more notably in the second half of the year and the UK begins to show some signs of moderate pick-up fuelled by the sharp drop in inflation that has been a catalyst for little or no growth over the last 18mths.”

Rabobank expects three rate cuts this year starting in June. It added; “However, the market odds of a June move are now fairly evenly balanced and we acknowledge that there is a path to fewer rate cuts if the US economy continues to display resilience.”

It is also Rabobank’s view that the Fed’s easing cycle could be paused by the middle of next year which could trigger fresh dollar buying. It noted; “This assumes a Trump presidency and the introduction of fresh trade tariffs which implies higher prices for the effected goods.”

Notable rate cuts this year would also limit the scope for cuts next year.

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TAGS: Pound Dollar Forecasts