Pound to Dollar Rate Held Below 1.2700

June 20, 2024 - Written by David Woodsmith

STORY LINK Pound to Dollar Rate Held Below 1.2700

The US dollar retreated from intra-day highs after the latest US retail sales data, but still posted a small net gain with the Euro and Pound unable to gain sustained support.

The Pound edged lower ahead of Wednesday’s inflation data with the Pound to Dollar (GBP/USD) exchange rate held around 1.2690.

Looking at GBP/USD, Scotiabank commented; “there is little staying power in gains which have struggled to hold 1.27+ levels after last week’s bearish close for the GBP. It feels like the pound has more work to do to establish a base—either holding in the upper 1.26s or finding a foothold at a lower level in the high 1.25s perhaps before it can steady and improve.”

Headline US retail sales increased 0.1% for May after a 0.2% decline the previous month and below consensus forecasts of 0.3%.

Underlying sales declined 0.1% for the second successive month while the control group recorded a 0.4% increase after a revised 0.5% decline for April.

The data maintained some reservations over the outlook for consumer spending within the economy.

According to Scotiabank; “Consumer angst perhaps risk keeping sales activity on the soft side amid sticky inflation and no retreat on rates from the Fed.”

Danske Bank analysed the US economy and interest rates; “As a bottom line, while we do not expect a sharp weakening in the data, we still look for further cooling of the US economy.

It added; “We still like our call for two 25bp Fed cuts this year (Sep and Dec) followed by four more in 2025, and underscore that the past week’s data has only increased our confidence on that call. The Fed is in no hurry to cut for now, but it seems ready to act when the time comes.”

The bank also noted the possibility that there could be a July rate cut.

ING also noted a potential turn in the economy; “It has been a struggle, but it is starting to look like investors are swinging behind Federal Reserve rate cuts this year. US May CPI and PPI price data are showing encouraging signals and point to another low print for the Fed’s preferred price gauge – core PCE - when it is released on 28 June. We think there is plenty of room for US short-dated yields to fall – a clear dollar negative.”

Rodrigo Catril, senior currency strategist at National Australia Bank noted that economic support for the dollar has faded; "If you look at the data flow coming out of the U.S., the inflation data and the labour market data are pointing to a turn in policy at the Fed despite the paring of rate cut projections by officials.”

He added; "At the moment, it's the dollar's safe haven appeal that's been keeping it supported."

Sterling markets were braced for two major events this week with the inflation data Wednesday and Bank of England policy decision on Thursday.

The headline inflation rate is forecast to decline to 2.0% from 2.3%, the weakest reading since August 2021.

Joe Tuckey, head of FX analysis at broker Argentex commented; "Wednesday's CPI will impact market pricing of just under two cuts for this year, whilst Thursday is likely to see rates unchanged at 5.25%, with a 7–2 vote split likely from the MPC."

He added; "In the absence of a cut this week, the MPC are likely to wait until the August meeting, by which time another inflation print will be known."

COT data recorded a further increase in long, non-commercial Sterling positions to just over 52,000 contracts in the latest week from 43,000 previously and the largest long position for close to three months.

The positioning data will make it difficult for the Pound to secure buying support in global markets.

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TAGS: Pound Dollar Forecasts