US Dollar Buying Takes a Break, Pound Sterling Recovers - GBP/USD Outlook

November 14, 2024 - Written by Frank Davies

STORY LINK US Dollar Buying Takes a Break, Pound Sterling Recovers - GBP/USD Outlook

The Pound to Dollar (GBP/USD) exchange rate found support around 1.2730 on Wednesday, just above 3-month lows at 1.2720 recorded on Tuesday and recovered to 1.2755 after the latest US inflation data with an element of profit taking on long dollar positions.

Politically, the Trump appointments so far have reinforced expectations of tough trade and immigration policies with markets continuing to back medium-term Trump trades.

There will, however, be the risk of at least a temporary retracement.

According to ING; “the recent bullish move is starting to look a bit stretched, and the risk of a positioning-led short-term USD correction similar to the 7 November one is quite high.”

The bank still expects that there will be renewed dollar buying after any near-term correction.

UoB sees the threat of further losses, potentially to 1.2665 and added; “We will continue to expect GBP to weaken as long as 1.2845 (‘strong resistance’ level was at 1.2975 yesterday) is not breached.”

US consumer prices increased 0.2% for October with the year-on-year inflation rate increasing to 2.6% from 2.4%.

The core rate recorded a 0.3% monthly increase with the annual rate unchanged at 3.3%.

The monthly and annual figures were all in line with market expectations.

The immediate focus will be on the potential for a further Federal Reserve rate cut in December.

The initial market response was to consider that a December move was more likely with traders pricing in just over a 70% chance of a December cut from 55% previously.

There have been some warnings from Fed officials that disappointing inflation data could lead to a pause in rate cuts.

In this context, hawkish rhetoric following today’s data would trigger fresh doubts over a cut and potentially renewed dollar buying.

Domestically, there was further hawkish rhetoric from Bank of England MPC member Mann.

According to Mann, services-sector inflation is pretty sticky while there is a threat of upside risks to energy prices and most factors are showing upward price bias.

Mann did comment that she would be ready to cut rates in bigger steps when inflation risks have gone.

According to Danske Bank; “Looking ahead, next week's October inflation release is key, where we will likely see a slight increase due to energy price adjustments.”

ING still sees an eventual shift in BoE policy; “Markets are pricing little to no chance of a cut in December, and only 50bp in total by September 2025. In our view, the risks remain skewed towards a dovish repricing and consequent negative impact on sterling, although a repricing lower in rates may take some time to materialise as markets will tread carefully when assessing the inflationary implications of the budget.”

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