Pound to Dollar Rate Week Ahead Forecast: USD Strength Tipped to Continue

November 24, 2024 - Written by Frank Davies

STORY LINK Pound to Dollar Rate Week Ahead Forecast: USD Strength Tipped to Continue

HSBC expects that the Pound to Dollar (GBP/USD) exchange will edge lower to 1.24 by June 2024.

The bank is forecasting significant net dollar gains, but with GBP/USD losses contained by a Pound advance against the Euro.

UBS has scaled back its GBP/USD forecasts following the US election, but still expects gains to 1.33 by the middle of 2025.

The dollar posted further gains during the week with the trade-weighted index (DXY) at 2-year highs above 107.50. In this environment, GBP/USD dipped to 6-month lows just below the 1.2500 level despite cautious Bank of England rhetoric.

ING sees scope for some near-term dollar relief; “we may also start to hear of dollar seasonality again where DXY has fallen in eight of the last 10 Decembers and for the last seven consecutive Decembers.”

On a valuation basis, ING also considers that GBP/USD is overvalued by around 4%.

HSBC is still backing the dollar over the medium term; “We have believed in the strong USD for some time but there is more to come. The combination of cyclical, fiscal and US political forces is making the USD even greater again. We update our USD bullish views further; its bubble is re-inflating, which spells trouble ahead for others.”

US data was mixed during the week, but Fed rhetoric was relatively hawkish and markets were less confident that the central bank will be able to cut interest rates significantly next year.

There were further concerns over the European outlook which underpinned the US currency.

Expectations surrounding Trump Administration policies were also a key element supporting the US currency.

Morgan Stanley expects further near-term dollar gains; “We think that trade will be the dominant near-term driver, supporting USD’s strength into year-end as markets price higher risk premium associated with geopolitical and trade tensions, and that risk premium is likely to peak in the coming weeks.”

It added; “We expect G10 FX to be challenging in 2025 amid time-varying, cross-cutting forces, but the DXY initially rising to near the top at 108 by end-2024, before falling slowly to the bottom at 101 by end-2025.”

Morgan Stanley is broadly positive on the Pound, limiting GBP/USD pressure; “GBP sees additional benefits beyond positive risk appetite from limited trade-related concerns and supportive carry.”

UBS has adjusted its forecasts; “In the new Trump regime, we think USD weakness will be more limited.”

Nevertheless, it still expects net dollar losses over the medium term given underlying fundamentals.

UBS added; “Trump’s proposed policies are expected to widen the twin deficits, undermining the dollar’s long-term attractiveness. That has given rise to two risks: the negative surprise potential for him to underdeliver on dollar-positive policies, given the now high market expectation, or the potential for him to clearly seek lower yields and a weaker dollar.”

Bank of America takes a similar view; “Even more fiscal loosening, from an already very lose policy stance, could support the USD in the short-term, despite now being back to an all-time high in real effective terms, but we do not expect this to be sustainable.”

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TAGS: Pound Dollar Forecasts