Pound to Dollar Week Ahead Exchange Rate Forecast: Recovery?

December 8, 2024 - Written by Frank Davies

STORY LINK Pound to Dollar Week Ahead Exchange Rate Forecast: Recovery?

ING forecasts that the Pound to Dollar (GBP/USD) exchange rate will retreat to 1.24 at the end of 2025.

In contrast, Credit Agricole expects that GBP/USD can recover from initial losses trade at 1.30 at the end of next year. UBS expects a stronger rebound to 1.35.

US data for the week was mixed, but with a soft overall tone.

US non-farm payrolls increased 227,000 for November after a revised 36,000 increase the previous month while the unemployment rate edged higher to 4.2% from 4.1% and the number of employed fell sharply.

Fed Governor Waller indicated he would back a December rate cut if jobs data was benign and, following the data, markets priced in around a 90% chance of a cut which hampered the dollar.

UK housing data was solid for the week and GBP/USD hit 3-week highs just above 1.2800 before fading to 1.2740.

Credit Agricole discussed the potential dollar policy and outlook; “A weak USD could also help boost the US’s international competitiveness, as highlighted by Trump himself.”

It also considered the counter-argument; “A weak USD could complicate things if it fuels imported inflation and further makes it more difficult to borrow. A stable or even stronger USD may be desirable if Trump wants to ramp up fiscal spending, but the tariff fiscal revenues do not cover the outlays.”

The bank concluded; “The above inconsistency could keep investors wondering whether Trump wants a weak or a strong USD. Our best guess is that the new US trade policies would ultimately lead to weaker USD over time.”

ING is bullish on the dollar; “Trump’s mix of policies is dollar-positive. US growth at the expense of the rest of the world should see a repeat of the broad dollar rally witnessed in 2018-2019 under peak Trump 1.0.”

The bank did note that there could be pressure for a weaker dollar if the economy weakens.

It also commented; “Our wild call is for a dollar crash – probably led by the US Treasury market. It is very rare to see US Treasury yields rising and the dollar falling at the same time – but it has happened before. Here, investors baulking at the insufficient compensation for taking on US asset exposure could see all US asset markets under pressure as a ‘sell America’ mentality takes hold.”

MUFG expects near-term dollar strength; “We expect a flurry of trade tariff announcements in January along with action on deportations and a push for quick legislation on tax cuts (similar to 2017) that will fuel renewed dollar appreciation.”

It expects at least a limited reversal later in the year; “We may see the dollar peak in 1H 2025 before we see some retracement as the US economy slows and the Fed cuts rates.”

It added; “The low point in GBP/USD should come in 1H 2025 as trade tariff fears reach their peak.”

According to HSBC; “looking beyond the near-term FX movements, we think the case for USD strength through 2025 is robust. Our long-held framework for thinking about the USD’s direction of travel boils down to the “circle of trust” – global growth dynamics, US yields relative to others, and risk appetite.”

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TAGS: Currency Predictions Pound Dollar Forecasts