Pound to Dollar Week Ahead Forecast: Positive Sterling Sentiment Dominates

August 26, 2024 - Written by John Cameron

STORY LINK Pound to Dollar Week Ahead Forecast: Positive Sterling Sentiment Dominates

Bank of America (BoA) forecasters expect that the Pound to Dollar (GBP/USD) exchange rate will strengthen to 1.35 at the end of 2024 with further gains to 1.41 at the end of next year.

According to BoA, GBP/USD has rallied through resistance from its long-term downtrend twice this summer implying a trend change.”

Danske Bank expects that GBP/USD exchange rate will hold steady in the short term before a retreat to 1.25 on a 12-month view as the dollar regains ground.

Positive sentiment continued to underpin the Pound during the week and, with the dollar under pressure amid a frenzy of expectations surrounding Fed rate cuts, GBP/USD hit 13-month highs above 1.32.

Markets remain extremely confident that the Federal Reserve will cut interest rates in September.

In contrast, markets are doubtful that the Bank of England (BoE) will cut rates again until November.

UK business confidence data was a net positive for the Pound with the services-sector index at a 26-month high.

BoE Governor Bailey also continued to warn not to cut interest rates too fast.

US business confidence data was mixed with a slightly faster pace of growth in the services sector while the manufacturing sector remained in contraction territory.

According to Fed Chair Powell; “The time has come for policy to adjust."

He added; "The direction of travel is clear and the timing and pace of rate cuts will depend on incoming data, the evolving outlook, and the balance of risks."

At this stage, markets are pricing in just over a 75% chance of a 25 basis-point cut with under a 25% chance of a 50 basis-point move.

Rabobank commented; “It remains Rabobank’s view that the FOMC is likely to announce a 25-bps rate move next month, rather than a larger 50-bp cut.”

ING expects forthcoming data could still be important. It added; “If we get a sub 100k on payrolls and the unemployment rate ticking up to 4.4% or even 4.5% then 50bp looks more likely. If payrolls come in around the 150k mark and unemployment rate stays at 4.3% or dips to 4.2% we can safely say it will be a 25bp.”

Danske Bank expects a period of range trading in the short term, but still expects a stronger dollar over the medium term; “driven by our expectation of stronger US growth dynamics supporting the USD.”

Near-term economic developments have dominated markets, although markets were also monitoring political developments.

Opinion polls suggest that Democrat candidate Harris has a small national lead while the electoral college is too close to call.

As far as currency markets are concerned, MUFG commented; “The general market consensus had been that a Trump victory would lift the dollar and steepen the yield curve.”

It added; “A too-close-to-call election brings with it greater uncertainty, in particular in the immediate aftermath of the election and that could certainly result in or reinforce unfavourable financial market conditions at a time when the US economy could be deteriorating more markedly.”

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Dollar Forecasts