Pound to Dollar Week Ahead Outlook: Latest GBP/USD Forecast Ranges

April 21, 2024 - Written by David Woodsmith

STORY LINK Pound to Dollar Week Ahead Outlook: Latest GBP/USD Forecast Ranges

Currency exchange analysts at Barclays Bank forecast the Pound to Dollar (GBP/USD) exchange rate will weaken to 1.21 in the short term outlook.

The shift in US interest rate expectations has continued to take its toll on GBP/USD forecasts with Danske, for example, forecasting 1.16 on a 12-month view.

GBP/USD dipped to 5-month lows below 1.24 during the week and rallies faded quickly.

Interest rate expectations have remained important underlying drivers of currencies, although risk conditions have also been important, especially with on-going Middle East tensions.

After last weekend’s, Iranian missiles attack against Israel, this Friday, there were reports that Israel launched a missile against Iran.

Markets overall were wary over the threat of further escalation.

ING commented; “Markets will be monitoring headlines very closely, trying to gauge the risk of the Iran-Israel tensions spiralling into a fully-fledged conflict in the region.”

The bank added; “Middle East tension only adds to the dollar’s appeal – given it has the advantages of liquidity, high deposit rates and US energy independence. And clarity post the November elections is poor.”

US retail sales data was stronger than expected for March while the latest business surveys were mixed and labour-market data held firm.

There were still some reservations surrounding underlying credit conditions and a rise in credit card delinquencies.

Nordea commented; “The increase in delinquencies could mean that higher rates are becoming a problem for a growing share of households. Lower spending could in turn lead to less hiring. While this is not happening at the overall level, it is something to keep an eye out for among generally strong economic data.”

MUFG added; “The US Fed Beige Book provided some qualitative evidence of a US economy that is moving towards better balance and softer demand that the Fed wants to see.

There has, however, been a further shift in interest rate expectations with the chances of a June Fed rate cut are now seen at below 20% and the potential for a July move is now seen at less than 50%.

This shift in rate expectations has continued to underpin the dollar.

ING commented; “A rewrite of the US/Fed scenario means that we have had to cut our GBP/USD profile. A marginally more difficult investment environment on the back of higher US rates for longer will also be generating some headwinds for GBP/USD. When it comes to the Bank of England, we are still looking for four cuts this year starting in August. Some are looking for June – but that seems too early.

ING now has an end-2024 GBP/USD forecast of 1.25 from above 1.30 previously.

The UK data flow overall was close to market expectations.

The headline annual increase in wages held at 5.6% in the year to February and compared with expectations of 5.5% while the unemployment rate increased to 4.2% from 3.9%.

As far as inflation is concerned, the headline rate slowed to 3.2% from 3.4%, but slightly above expectations of 3.1% with the core rate at 4.2% from 4.5%.

Potential Pound support from the data was offset by relatively dovish rhetoric from Bank of England officials.

In comments on Friday, Deputy Governor Ramsden stated that the balance of domestic risks on inflation is now tilted to the downside.

Barclays commented; “market pricing of only 1-2bp for a May cut and just 55bp of cuts by year-end is overly hawkish given the starting point for Bank Rate, data risks and BOE communication.

It added; “In all, we think risk-reward favours tactical short positions in the pound.”

The overall market consensus is that BoE rates will be cut in August, although uncertainty remains elevated.

Dean Turner, UK economist at UBS noted the US influence; “If the Fed refrain from easing, or do so very slowly, then policy makers here may decide they have to moderate the pace of cuts through the end of the year and into next year.”

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TAGS: Pound Dollar Forecasts