– Written by
Frank Davies
STORY LINK Pound Sterling to Dollar Forecast: Hawkish Fed Keeps USD Risks Tilted Higher
The Pound to Dollar exchange rate (GBP/USD) has recovered towards 1.3390 after once again finding support below 1.3350, with a pullback in energy prices taking some of the momentum out of the US Dollar.
Pound Sterling remains vulnerable, however, as markets continue to price a hawkish Federal Reserve outlook and investors await fresh evidence on the relative strength of the US and UK economies.
GBP/USD Forecasts: Bouncing from Support
The Pound to Dollar (GBP/USD) exchange rate resisted a further test of support below 1.3350 on Monday and traded around 1.3390. The dollar edged lower amid a corrective retreat in energy prices while the Pound held steady.
Scotiabank commented on the GBP/USD outlook; “The medium-term trend from June remains bullish; however spot will need to remain above the mid/lower-1.33s in order to maintain the trend of ascending support. We look to near-term support around 1.3320 and see limited near-term resistance ahead of 1.3480.”
There is still a high degree of uncertainty over geo-political developments and energy prices and these developments will also feed through into wider economic trends.
Danske Bank commented; “Near-term risks are closely tied to the war in Iran, while medium- to long-term risks continue to be tied to the US growth outlook and the US monetary policy outlook.”
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As far as data releases are concerned, the latest PMI business confidence data will be released on Wednesday. Markets will assess the relative economic outlook and the implications for monetary policy.
ING commented on the overall US outlook; “The scope to keep pricing a more hawkish Fed after the September FOMC remains a key argument for further US dollar gains.”
It added; “While we still see near-term upside risks for the greenback, our year-end and longer-term view is unchanged and gradually USD negative. We remain materially more dovish than market pricing on the Fed and continue to use a sharp decline in oil prices in 4Q as our baseline scenario.”
MUFG discussed the dollar outlook; “we have not altered our dollar forecasts notably, especially further out the profile as most other G10 central banks are likely to hike further over the coming months. As a result of current central bank policy expectations, front-end rate spreads do not suggest any notable dollar strength.”
It did add; “However, upside risks relate to the potential for a rates overshoot in the US, a terms of trade boost on energy risks, growing political uncertainties in France and risks of a pick-up in FX volatility due to risk asset correction.”
Nordea now sees scope for near-term dollar gains; “Beyond the Fed, the broader macro backdrop still favors the dollar. The US remains the global growth center, and is now even more attractive given higher rates and its position as the place to be for AI stocks, both dollar-positive.”
It did add; “international portfolios are already heavily exposed to US assets, so the scope for further valuation-driven inflows may be narrowing.”
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TAGS: Pound Dollar Forecasts
