Pound Sterling in the Eye of the Storm

September 27, 2024 - Written by John Cameron

STORY LINK Pound Sterling in the Eye of the Storm

While the South-East US braced for Hurricane Helene, currency market volatility eased slightly on Thursday with a possible consolidation phase as markets waited for the next major market-moving events.

The latest data suggested a soft landing was realistic while gains in US equities helped support risk appetite.

The Pound to Dollar (GBP/USD) exchange rate held firm just above 1.3350 and not far below 31-month highs.

According to UoB; “The current price movements are likely the early stages of a range trading phase. In other words, we expect GBP to trade in a range for the time being, likely between 1.3200 and 1.3430.”

US initial jobless claims declined to 218,000 in the latest week from a revised 222,000 the previous week and slightly below consensus forecasts which did not suggest any major labour-market deterioration.

Durable goods orders were unchanged for August compared with expectations of a 2.8% decline and following a revised 9.9% surge the previous month.

Elsewhere, second-quarter GDP was unrevised at 3.0%.

The data overall offered some reassurance surrounding growth trends.

Potential dollar support was, however, notably limited, especially with markets still pricing in just over a 50% chance of a second successive 50 basis-point Fed rate cut in November.

ING commented; “The quarter-end flows may continue to offer the dollar some modest support today, but the positioning picture did not look that heavily skewed to dollar shorts to justify large readjustments.”

It added; “Ultimately, stronger US data is needed to convince markets to abandon 50bp cut bets. That may not happen overnight, and there is still a substantial risk the dollar will stay capped into the US election.”

Danske Bank expects forthcoming US data will be crucial and sees limited scope for further dollar losses.

According to the bank; “Next week's jobs report is still the next key catalyst to watch. We believe a trigger is needed for notable USD weakness in the near term, as Fed pricing is already relatively dovish, and much of the USD downside is arguably priced in.”

There were no major domestic developments during the day.

UBS maintains a positive stance on the Pound. According to Patrick Ernst, director of forex investment strategy; "We think higher yield differentials will support the pound against the dollar over time."

He added; "We expect the pair (GBP/USD) to gradually move higher but note that temporary setbacks are possible following the latest rally."

HSBC, however, remains sceptical over the Pound outlook and does not expect levels above 1.30 will be sustainable; "We think the pound is quite toppish at the moment as the decline in inflation lagged other countries. The impact will fade next year, and we expect the BoE to cut rates more quickly than markets currently forecast."

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TAGS: Pound Sterling Forecasts