Pound Rate Today: Sterling Recovers vs Dollar as Traders Looking for Breakout Trigger

June 25, 2024 - Written by John Cameron

STORY LINK Pound Rate Today: Sterling Recovers vs Dollar as Traders Looking for Breakout Trigger

After posting 5-week lows close to 1.2620 late last week, the Pound to Dollar exchange rate (GBP/USD) has recovered to 1.2700 with slight net Pound gains on the crosses.

Although volatility has been low, markets are continuing to fret over underlying conditions and waiting for the fresh narrative which will trigger a breakout and lead to sharp moves in currencies.

The timing of interest rate cuts will be one key element.

ING commented; “Looking at forward curves, it is remarkable that UK interest rates remain priced so close to the US. Both price around 45bp of rate cuts this year and both have a terminal rate for forthcoming easing cycles around the 3.30/3.40% area.

If this picture changes, there will be a sharp GBP/USD reaction.

Overnight, San Francisco Fed President Daly commented that; “inflation was not the only risk that needs to be monitored and added that the bank is nearer to a point where benign outcome on labor market could be less likely.”

She added that the Fed; “Must fully restore price stability without a painful disruption to the labor market. If we continue to see gradual declines in inflation and a slow rebalancing in the labor market, then we can normalize policy over time, as many expect."

At this stage, markets are pricing in just over a 65% chance of a September Fed rate cut, but speculation will intensify if US jobs data deteriorates sharply.

ING expects that the US inflation data will also be important; “The bigger market mover this week will be Friday's core PCE inflation read. Should it meet expectations of a 0.1% month-on-month reading, we suspect the short-end of the US curve can come lower and take the dollar with it.”

MUFG added; “the latest US PCE deflator report for May is expected to provide further confirmation that core inflation has slowed in recent months. It has given us more confidence that the Fed will be able to deliver multiple rate cuts in 2H of this year. US economic data surprises continue to surprise to the downside including the recent pick-up in initial claims pointing towards a softening of growth momentum.”

Looking at the Bank of England, markets are pricing in over a 50% chance of an August rate cut.

ING expects yields will move against the Pound; “Our conviction view this summer is that UK rates will be repriced lower starting with a rate cut in August. And this should lead to a lower pound.”

S&P Global Ratings expects an August move; “while 'it's still too early for the BoE to claim victory', an impending slowdown in employment data and still-subdued consumer demand will lay the framework for the first interest rate cut in August.”

ING also looked at the TV presidential debate between Trump and Biden. It commented; “It may be too early to expect this, but we will want to see whether the dollar responds to who 'wins' the debate. A positive outcome for Trump could see the dollar edge higher.

Danske Bank looked at the underlying fiscal position and noted that the Congressional Budget Office (CBO) has lifted its fiscal 2024 baseline deficit projection to 6.7% of GDP from 5.3% in February.

According to Danske; “While technical and temporary factors explain much of the increase, the longer-term structural deficit outlook remains as dire as ever.”

Energy prices will also have an important impact on economic condition and currencies.

The bank added; “energy prices have slightly increased in Europe compared to the US. This is most pronounced in the natural gas market, where the spread between natural gas prices on both sides of the Atlantic has risen to the highest level since the turn of the year.

According to Danske; “On the electricity market, prices have also risen slightly more in Europe, as has diesel. This development can be translated into a relative terms of trade improvement for the US. Such a development would tend to underpin the dollar.”

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TAGS: Pound Dollar Forecasts