Pound to Dollar Forecast: Will 4-Month Best Hold for GBP/USD Buyers?

July 12, 2024 - Written by David Woodsmith

STORY LINK Pound to Dollar Forecast: Will 4-Month Best Hold for GBP/USD Buyers?

Stronger than expected GDP data and hawkish Bank of England (BoE) rhetoric has triggered renewed Pound gains in global markets.

The Pound to Dollar (GBP/USD) exchange rate hit 4-month highs at 1.2870 and close to 11-month highs.

US inflation data will be a key element for GBP/USD later in the day.

A sustained move above 1.2860 could trigger a move to 1.30.

UK GDP increased 0.4% for May after no growth in April and double consensus forecasts of 0.2% growth for the month.

Services-sector output increased 0.3% for the month with a strong 1.9% rebound in construction.

ING notes that are fluctuations in the data, but added; “the unavoidable conclusion after five month’s data is that the economy is faring much better so far in 2024.”

According to Yael Selfin, Chief Economist at KPMG UK; “The near-term outlook for the UK economy has continued to improve. Consumer spending is set to be the main driver of activity in the second half of the year, underpinned by stronger consumer sentiment and improving household incomes.”

Deutsche Bank commented; “This should be a boon for the new Labour government with growth now likely to outstrip the Office for Budget Responsibility’s 2024 GDP forecasts.”

This would give the government increased room for manoeuvre on fiscal policy.

Bank of England expectations will remain a key element for the Pound.

Susannah Streeter, head of money and markets, Hargreaves Lansdown commented; "This snapshot of an economy growing a bit faster than forecast, could make Bank of England policymakers that bit more reticent about voting for an interest rate cut on 1 August."

Bank of England (BoE) rhetoric will also continue to be watched closely.

According to BoE MPC member Mann the labour market was still tight and wages growth is still far away from being consistent with the inflation target.

She added that the bank had to see moderation in services-sector inflation before backing a cut in interest rates.

BoE chief economist Pill also stated reservations over underlying inflation trends in comments on Wednesday with concerns over persistent pressures within the services sector.

Overall market confidence in a near-term interest rate cut faded with markets pricing just under a 50% chance of a cut in August.

ING commented; “Chief Economist Huw Pill’s comments did matter to a greater extent, as he is a more accurate benchmark for consensus within the committee. Pill’s comments yesterday mostly stressed the persistence and upside risks in services inflation, shedding light on greater doubts about an August cut.”

It added; “Following the latest hawkish BoE commentary, it will take some convincing developments in UK prices to convince markets an August cut is possible. That remains our base case anyway, so we believe that GBP strength will be short-lived.”

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TAGS: Pound Dollar Forecasts