Sterling Recovery Continues, Pound to Dollar Rate Above 1.25

April 25, 2024 - Written by John Cameron

STORY LINK Sterling Recovery Continues, Pound to Dollar Rate Above 1.25

Although the US Dollar has posted 34-year highs against the Japanese Yen, the US currency has not been able to sustain the advance against European currencies.

The dollar index overall has retreated to 105.25.

The Pound has also continued its recovery in global markets and the Pound to Dollar (GBP/USD) exchange rate has broken back above the 1.2500 level to a 10-day high at 1.2520.

Bank of America strategist Kamal Sharma commented; "With sterling undershooting the move in UK rates and more balanced commentary this week, our bias would be to fade the recent dovishness and for the pound to retrace some of its losses.

Equity market moves will be potentially significant with US futures losing ground on Thursday while the FTSE 100 index has posted a fresh record high.

David Cumming, head of UK Equities at Newton Investment Management commented; The UK has been cheap for a while, it's cheap relative to history, it's cheap relative to global markets, particularly cheap against the U.S."

He noted the potential for sustained gains in UK equities; "The catalyst would be the economic data in the UK is getting better, we are returning to growth."

The US will release the advance reading of first-quarter GDP on Thursday.

As far as growth is concerned, MUFG commented; “The release today of the preliminary estimate of the US GDP in Q1 is expected to confirm that the US economy continued to grow strongly at the start of this year. While growth is expected to moderate to around 2.5% in Q1 following robust growth of just over 3.0% in the 2H of last year, the scale of the slowdown has been more modest than initially expected.”

Growth data will be important, but the inflation evidence will also be under very close scrutiny this time around.

The data will give significant guidance on the core PCE prices data on Friday which will be important for US interest rate expectations and the dollar.

Consensus forecasts for the core PCE prices reading are for a 3.40% reading.

ING commented; “In short, today's first quarter core PCE deflator could be quite a market mover.”

According to ING; “We think the risks from this are pretty symmetric for the dollar. Long dollars is quite a crowded trade, and a fairly sharp sell-off in the dollar earlier this week on the back of the soft US PMI readings served as a reminder that long dollar positions are not bulletproof.”

It did, however, add that a stronger than expected reading would trigger sharp dollar index gains to at least 106.50.

The US will also release the latest jobless claims data.

Bank of England expectations will also be significant as the countdown continues to the May 9th policy meeting.

ING commented; “Just as we started to get excited about an important leg lower in sterling earlier this week, Bank of England Chief Economist, Huw Pill, poured cold water over the sterling sell-off.

It added; “This leaves the market a little confused over the direction of travel for the insiders on the UK MPC committee. We certainly like sterling lower this year as the restrictive 5.25% policy rate gets cut for an economy running a negative output gap. The timing of the sterling sell-off remains a little unclear, however.”

According to Barclays; "We are also seeing signs of life in the UK economy, with a recent pick-up in activity indicators like PMI, consumer sentiment.”

The latest CBI retail sales survey, however, recorded a headline figure of -44 for April from 2 previously and below consensus forecasts of -2 which will cast fresh reservations over the outlook for retail spending.

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TAGS: Pound Dollar Forecasts