Pound to Dollar Exchange Rate "Dragged" Lower with Euro

June 29, 2024 - Written by John Cameron

STORY LINK Pound to Dollar Exchange Rate "Dragged" Lower with Euro

The Pound to Dollar (GBP/USD) exchange rate has crawled away from 6-week lows at 1.2613, but has not been able to make much headway as the dollar remains dominant.

At this stage, political concerns have sapped support for the Euro which has also dragged GBP/USD lower.

According to UoB; “Downward momentum is picking up again, and a break of 1.2600 would not be surprising. The next level to watch below 1.2600 is at 1.2550. On the upside, the ‘strong resistance’ level has moved lower to 1.2680 from 1.2705.”

The US political temperature will heat-up over the next 24 hours which could provide significant insights into the medium-term currency outlook.

The dollar overall has maintained a strong tone in global markets with the currency index overall at 8-week highs.

Federal Reserve rhetoric has remained relatively hawkish, making it very unlikely that rates will be cut more than two times unless the economy deteriorates sharply and overall yields will, therefore, tend to maintain a positive dollar tone.

In this context, the yen has again been the main loser and USD/JPY hit highs at 160.80, the strongest level since October 1986.

Verbal intervention by Japanese officials has intensified.

Japanese senior currency official Kanda commented; “I have serious concern about the recent rapid weakening of the yen and we are closely monitoring market trends with a high sense of urgency. We will take necessary actions against any excessive movements.”

MUFG commented; “While the step up in verbal intervention may help to slow the pace of yen weakness in the near-term, it will have to be backed up again by direct intervention to purchase the yen. At the same time, it is hard to see what another bout of intervention can achieve other than buying more time to allow for a change in fundamentals to trigger a reversal of yen weakness.”

There will be a sharp reaction if there is intervention.

ING commented; “The dollar may stay generally supported today, unless Japanese FX intervention triggers an inversion.”

There are significant US releases on Thursday with revised GDP data and the latest jobless claims figures.

Political developments will also be important with unease ahead of the French parliamentary elections on Sunday tend to support the dollar.

There will also be significant US developments with the first TV debate between President Biden and Trump.

ING commented; “Our baseline assumption is that Trump is the most dollar-positive candidate due to protectionism pledges, geopolitical stance and plans for lower taxes, but markets have not had a real chance to trade on the back of US political news as monetary policy dominated.

It added; “Any FX action based on the perceived winner of the debate can help us calibrate the coefficients for November’s market reaction function.”

HSBC commented; “Since early September last year, we have believed in the strong USD, and we see this continuing in the months ahead. The US Dollar Index (DXY) has strengthened since the start of the year and has been tracking changes in the Federal Reserve (Fed) rate cut expectations closely.”

It expects a firm dollar tone will be sustained. It noted; “Divergent monetary paths and the level of US yields should support our strong USD view.”

There has been no change in UK election dynamics with Labour maintaining a very strong lead. MUFG commented; “A bigger pound reaction could be triggered if Labour performs worse than expected by the polls and there is a hung parliament scenario which could trigger a pound sell-off but that scenario appears unlikely.”

In its latest financial stability report the Bank of England commented that UK businesses are broadly resilient to the current economic outlook and mortgage arrears are expected to remain well below previous peaks. It did, however, add that the adjustment to higher interest rates is not complete and market prices are vulnerable to a sharp correction.

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TAGS: Pound Dollar Forecasts