Pound Sterling Stalls Ahead of Key US Data Releases

September 4, 2024 - Written by Frank Davies

STORY LINK Pound Sterling Stalls Ahead of Key US Data Releases

After quiet conditions on Monday with the US markets closed for the Labor Day holiday, the Pound to Dollar (GBP/USD) exchange rate retreated to 10-day lows near 1.3100 on Tuesday before settling around 1.3120.

Pound sentiment overall remains firm with hopes for solid growth, although US data releases are likely to dominate this week.

Markets remain extremely confident that the Federal Reserve will cut interest rates at the September policy meeting, but the crucial question is the size of the cut.

At this stage, the chances of a 25 basis-point rate cut are seen at close to 70% with the potential for a 50 basis-point cut around 30%.

The dollar will be more vulnerable if data releases signal further vulnerability and markets shift towards expecting a larger rate cut.

Charu Chanana, head of currency strategy at Saxo, commented; "If the data remains robust, a 25 bps cut is more likely. However, a weak non-farm payrolls, particularly if it falls below 130,000 with another jump higher in unemployment rate, could push the rates market closer to pricing a 50 bps cut"

The data flow starts on Tuesday with the ISM manufacturing index.

Consensus forecasts are for the index to remain in contraction territory despite a small monthly improvement to 47.5 from 46.8 previously.

According to ING; “The slack in the manufacturing sector has been priced in for a while, and we’ll probably need to see a rather soft number to trigger recession alarms and drive the dollar materially lower.”

Brown Brothers Harriman's global head of market strategy Win Thin sees no reason for the Fed to panic; "We are in a Goldilocks moment right now and so we continue to believe the Fed will start cutting rates this month in a very gradual manner.”

Domestically, the British Retail Consortium (BRC) reported that like-for-like UK retail sales increased 0.8% in the year to August from 0.3% previously and the strongest reading since March.

Linda Ellett, UK Head of Consumer, Retail & Leisure, KPMG remained cautious; “Despite a slight uptick in consumer confidence, shoppers did not catch-up their spending during August, with total sales growth of only 1% reflecting the challenging retail environment that is likely to dominate for the rest of this year.”

She added; “Consumer sentiment is gradually starting to improve, but there still remains some nervousness around potential tax rises and the cost of putting the heating back on when the cooler weather arrives.”

According to Barclaycard UK August consumer spending registered a 1.0% annual increase.

Barclays commented; "Growing real incomes and strengthening consumer confidence should combine with falling interest rates to increasingly allow consumers to put their spending power to work."

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TAGS: Pound Dollar Forecasts