Pound Sterling Resilient on BoE Restraint, but Dollar Strength Drags GBPUSD Lower

November 11, 2024 - Written by Frank Davies

STORY LINK Pound Sterling Resilient on BoE Restraint, but Dollar Strength Drags GBPUSD Lower

The Pound to Dollar (GBP/USD) exchange rate has dipped to 1.2875 from above 1.2900 on Monday amid another round of dollar strength.

In the short term, traders will focus on 12-week lows near 1.2835 posted in immediate reaction to Trump’s victory last week.

As far as the UK is concerned, the latest labour-market data is due on Tuesday with expectations that the headline annual increase in average earnings will tick higher to 3.9% from 3.8% with the unemployment rate at 4.1% from 4.0%.

There will need to be a very weak release to trigger stronger expectations of a further Bank of England (BoE) rate cut in December.

Markets will also be waiting for comments from BoE Governor Bailey at the Mansion House speech on Thursday.

ING expects the Pound will be resilient in global terms; “Sterling is doing quite well as the market continues to only price in a very modest easing cycle and the UK, by nature of its trade deficit with the US, may not be front and centre in the looming trade war.”

Nevertheless, given expectations of wider dollar strength, it still has a year-end GBP/USD forecast of 1.27.

Market volatility on Monday is being dampened by a partial US holiday, but there are expectations that huge tectonic shifts are on the horizon following the Trump election victory.

Republicans are close to securing a House of Representatives majority.

Danske Bank commented; “A Republican sweep would pave the way for Trump's political agenda, likely implying fiscal policies that could increase the budget deficit, public debt and ultimately inflationary pressures.”

An important short-term focus will be on nominations for key appointments by Trump, especially those that have a potential impact on economic policy such as Treasury Secretary.

Traders are still pricing in a 65% chance that rates will be cut again in December, but consider that the most likely outcome is only one further cut by June 2025.

ING noted the underlying dollar debate.

It commented; “The thesis for dollar bears now is that it will take a while for tariffs to come through and the Federal Reserve's recalibration to less restrictive monetary policy – plus end-year dollar seasonal patterns – could see a benign decline in the dollar into year-end.”

The bank does not back this argument; “We disagree and think this clean election result can boost US consumer and business sentiment at the same time as it weighs on business sentiment elsewhere in the world. We see the dollar strengthening into year-end.”

There are expectations that tariffs would tend to strengthen the dollar, but there is also speculation that the Administration would push for a weaker currency.

MUFG noted the potential leverage from the threat of tariffs; “Higher tariffs could be used to force other countries to agree to revalue their currencies against the US dollar.”

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TAGS: Pound Dollar Forecasts