Pound Sterling Unable to Benefit from Dollar Retreat

September 13, 2024 - Written by David Woodsmith

STORY LINK Pound Sterling Unable to Benefit from Dollar Retreat

The dollar posted significant losses in Asia on Wednesday after the US Presidential debate.

US yields have continued to decline with the 2-year rate around 3.55% and a 2-year low.

Lower yields have sapped dollar support, but the Pound has failed to secure significant benefit with confidence hit by weaker than expected GDP data.

The Pound to Dollar (GBP/USD) exchange rate failed to hold above 1.3100 and traded around 1.3080.

Overall, GBP/USD should be resilient, especially if there is benign inflation data later in the day.

UK GDP was unchanged for the second successive month in July compared with expectations of a 0.2% increase.

Industrial production declined 0.8% on the month with a 0.4% retreat for the construction sector.

This was offset by a slight 0.1% increase for the services sector.

GDP increased 0.5% in the three months to July while there was a 1.2% annual increase.

ING commented; “This probably throws some cold water on the recent notion of UK “exceptionalism”, but equally is no game changer for the Bank of England at this stage.

According to Ruth Gregory, deputy chief UK economist at Capital Economics; “For now, we are sticking to our view that the Bank of England will keep interest rates unchanged in September before cutting rates again in November. But today’s data has made an interest rate cut next Thursday a bit more likely.”

Luke Bartholomew, deputy chief economist at abrdn played down the data and still expects no change in rates this month.

The US TV Presidential debate remained a key talking point.

ING noted; “Commentators generally saw Harris as winner of the duel, and also betting markets are putting Harris now slightly ahead in the presidential race. An Instagram endorsement by Taylor Swift after the debate helped Harris too. Markets reacted with a modest risk-off and rates continued to edge lower, but the outcome was less clear cut compared to the Biden-Trump debate.”

MUFG expects a weaker dollar, but also noted the risk of weaker equities which could hurt the Pound. It noted; “Given the corporate tax policies of Harris and her assumed less friendly business policies, the US equity markets could underperform if Harris can build on this evidence in the national polling over the coming days and weeks.”

The latest US consumer prices data will be released on Wednesday and will have a significant impact on Federal Reserve interest rate expectations.

Ahead of the data, markets are pricing in around a 65% chance of a 25 basis-point cut and a 35% chance of a 50 basis-point cut.

MUFG commented; “A downside surprise would likely see a 50bp cut becoming a greater than 50% probability and hit the dollar further.”

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TAGS: Pound Dollar Forecasts