Pound Sterling Buffeted by Multiple Global Tensions, December Trades Keep GBP Afloat

December 3, 2024 - Written by Frank Davies

STORY LINK Pound Sterling Buffeted by Multiple Global Tensions, December Trades Keep GBP Afloat

There have been mixed dollar influences over the past 24 hours. The clash of global economic and political elements, allied with seasonal pressures, will lead to high volatility.

Seasonal trends of firm equities and dollar vulnerability will tend to underpin the Pound, but these factors could be offset by multiple global elements ahead of the new US Administration.

The Pound to Dollar (GBP/USD) exchange rate dipped to lows around 1.2620 before a rebound to 1.2690 on Tuesday. The Pound was underpinned by gains in equities with the FTSE 100 index at 6-week highs.

According to Scotiabank, a sustained GBP/USD rebound to above 1.2685; “may mean around two big figures of upside potential in the pound in the next couple of weeks.”

Global stresses in the BRUC currencies have supported the dollar with notable losses in the Chinese yuan, Brazilian real and Indian rupee.

ING commented; “on the international stage, the currencies of many US trading partners are suffering from some home-grown problems.”

These pressures have, however, been offset by expectations of a Federal Reserve rate cut this month.

Following the latest Fed rhetoric, markets are pricing in over a 70% chance of a cut on December 18th.

The Brazilian real has weakened sharply due to unease over government policies.

According to ING; “We also have the Brazilian real under intense pressure as President Lula waters down fiscal reform – perhaps with one eye on the 2026 Presidential elections. It added; “With a difficult external environment and no sign yet of a fiscal U-turn, it is hard to see $/BRL turning lower.”

The Chinese yuan has also dipped to 12-month lows. There is speculation that Beijing has decided to weaken the currency in anticipation that the US will impose tariffs against China once US President Trump takes office.

Markets will also continue to debate potential dollar policy under the Administration following Trump’s warning BRIC currencies that tariffs would be imposed if they undermine the dollar.

Rabobank strategist Jane Foley commented; "The remarks strengthen the view that Trump may not look to weaken the USD during his presidential term and will instead be relying on tariffs to tackle the U.S.'s large goods trade imbalance."

As far as interest rates are concerned, Fed Governor Waller stated, “I lean towards supporting a cut in December.”

He added that policy is restrictive enough that a December cut still allows ample scope to slow the pace of cuts later if needed.

Waller also commented that he could change his mind if the data releases are very strong.

Traders will, therefore, be monitoring US data very closely with a particular focus on labour-market data.

MUFG commented; “It supports our forecast for a 25bps rate cut this month unless there is significant upside surprise from the release of the nonfarm payrolls report on Friday.”

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TAGS: Pound Sterling Forecasts