Pound to Dollar Week Ahead Forecast: US Election Talk Dominates

October 20, 2024 - Written by Frank Davies

STORY LINK Pound to Dollar Week Ahead Forecast: US Election Talk Dominates

ING expects the Pound to Dollar (GBP/USD) exchange rate will weaken to 1.28 in the short term.

During the week, GBP/USD dipped to 8-week lows around 1.2975 before a tentative recovery to 1.3030.

The November US election is looming large on investment bank commentary and forecasts.

ING sees further potential dollar demand; “With the election less than three weeks away, it looks like investors will be reluctant to position against such threats even though the election outcome remains very uncertain.”

Given the high degree of uncertainty, ING is unwilling to make a longer-term GBP/USD forecast.

Socgen outlined a potential recovery path; “above 1.3135 can lead to a larger bounce. In such scenario, GBP/USD is likely to head higher towards August high of 1.3270 and perhaps even towards recent peak around 1.3450/1.3480.”

Morgan Stanley forecasts GBP/USD gains to 1.34 by the second quarter of 2025.

MUFG added “The rising probability of Donald Trump winning the US election next month is likely contributing to the hawkish repricing of Fed rate cut expectations in the near-term and encouraging a stronger US dollar. According to PolyMarket, the probability of Donald Trump winning the election rose back above 60% yesterday and closer to levels prior to President Biden’s decision to drop out of the race to seek re-election.”

RBC commented on the potential election implications; “on the grounds that Trump’s proposed policies are more inflationary, the Trump/Red Congress combination should be the most USD positive, even if Trump and some of his closest advisors have advocated for weaker USD to boost competitiveness. Harris on the other hand is less likely to materially shift USD relative to the status quo, particularly if Congress is split.”

According to Rabobank; “we don’t expect cable to revisit its recent highs any time soon and see risk that the US election could open a little more downside potential for the currency pair.”

Expectations of US interest rate cuts have continued to fade.

MUFG commented; “the latest US retail sales report for September revealed that the US economy is continuing to grow more strongly than expected which has put a further dampener on market expectations for Fed rate cut expectations.

According to Morgan Stanley; “We think the labor market will remain solid and that sequential inflation will stay slightly above target for the rest of the year, a scenario aligned with a string of 25bp cuts, we believe.”

In contrast, the weaker than expected UK inflation data triggered speculation over a more aggressive Bank of England stance with two rate cuts before the end of 2024.

UK headline inflation declined more sharply than expected to a 3-year low of 1.7% from 2.2% previously with the core rate declining to 3.2% from 3.4% and below expectations of 3.4%.

According to ING; “the house view that the BoE base rate is cut from 5.00% to 3.25% by late next year – a view not priced by the markets. That’s why we’re mildly negative on GBP. Look for two more BoE cuts this year.”

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