Wave of Uncertainty Favours USD, Pound to Dollar Rate Near 3-Week Lows

October 9, 2024 - Written by David Woodsmith

STORY LINK Wave of Uncertainty Favours USD, Pound to Dollar Rate Near 3-Week Lows

Domestically, there are no major data releases until the latest GDP figure on Friday and global developments have dominated the Pound moves this week.

The Pound to Dollar (GBP/USD) exchange dipped to 3-week lows at 1.3060 on Monday before a tentative recovery to 1.3090 on Tuesday. Weaker UK equities also curbed potential Pound support.

UoB does not expect a near-term test of key support at 1.3000, but added; “The downside risk will remain intact provided that GBP does not break above 1.3185.”

Following last week’s jobs data, there has been a further shift in market expectations surrounding Federal Reserve policy which has boosted the dollar.

Markets have now ruled out the possibility of a more aggressive 50 basis-point cut at the November meeting. Traders now expect close to a 90% chance of a 25 basis-point cut, but with a 10% chance of the central bank not cutting rates at the meeting.

US yields have also moved higher with the 10-year yield moving just above the 4.00% level for the first time since early August.

Higher yields will continue to underpin the US currency, although there are other major elements in play with geo-political concerns a key element.

ING commented; “We suspect inflation data this week won’t prompt big directional changes in the dollar, which may instead respond more to the Middle East turmoil, and consequent moves in oil prices.”

There have been further Israeli strikes against Hezbollah in southern Lebanon. A key concern is the likelihood of a strike against Iran.

Potential dollar sellers are inevitably wary over acting ahead of any possible move by Israel given the risk that any strike against Iran would be likely to trigger a spike stronger for oil prices and the dollar.

Danske Bank commented; “We are now in a period of elevated uncertainty. Recent developments in the Middle East have introduced short-term tail risks.”

It added; “Unstable risk sentiment and rising energy prices suggest further USD upside risk in the near term.”

The US is also braced for another major hurricane hitting Southern states.

There are also potential political implications from Middle East tensions, oil prices and natural events with markets focusing more closely on the November elections.

Opinion polls still point to a very tight contest.

MUFG commented; “At the same time, the proximity of the flare up in Middle East tensions to the upcoming US elections could play into the hands of Donald Trump as he seeks a second term as president.”

Danske looked at the implications of uncertainty; “Looking at positioning data, investors have broadly unwound their long USD positions since the summer, but we expect this trend to reverse in the coming months, as investors typically increase USD holdings when volatility rises.”

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TAGS: Pound Dollar Forecasts