– Written by
James Fuller
STORY LINK Pound Sterling to Dollar Forecast: Oil Prices, Bonds and US Payrolls
The Pound to Dollar exchange rate (GBP/USD) has recovered towards 1.3270 after finding support close to 12-week lows around 1.3200, but Sterling remains vulnerable as markets wait for the next move in global bond and energy markets.
US yields and expectations of substantial further Federal Reserve tightening continue to favour the Dollar, although the recent rally in the US currency is showing signs of losing momentum.
GBP/USD Forecasts: Holding Above 12-week Lows
After finding support close to 1.3200 last week, the Pound to Dollar (GBP/USD) exchange rate has secured a tentative recovery to 1.3270 with a limited dollar correction.
ANZ is looking to sell GBP/USD rallies; “With much of the BoE tightening story already priced in and growth momentum appearing soft, risks skew towards GBP/USD weakness.”
It sees resistance at 1.3300 and 1.3380 with the potential for a slide to the 1.31 area.
Oil prices moved higher on Monday following reports that US President Trump had rejected an offer from Iran to re-open the Strait of Hormuz.
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There was also renewed selling in bond markets with the UK 10-year yield above 5.40%. High yields can support the Pound, but there will be important economic consequences and tensions will inevitably remain high.
Energy and bond markets remain a key element and there will also be significant US data releases. There was a tentative rally in bonds after the US open amid fresh hopes that the US and Iran could engage in peace talks.
According to MUFG; “The current backdrop is supportive of the US dollar remaining stronger for longer.”
OCBC FX strategist Sim Moh Siong added; “The greenback could overshoot in the near term if energy market tensions persist and inflation risks continue to build.”
The narrative could change if oil prices retreat sharply.
ING, overall, is more cautious over the short-term outlook; “Barring another significant upside surprise in payrolls, we don’t see the dollar keeping up with its recent strong momentum.”
It added; “The dollar has been looking a bit expensive across G10 according to our short-term valuation models, and we see risks as balanced for USD this week.”
As far as US data is concerned, the monthly employment report is due for release on Friday. Consensus forecasts are for an increase in non-farm payrolls of around 100,000 for September following the stronger than expected figure of 162,000 last month with the unemployment rate holding at 4.1%.
MUFG commented; “After delivering their first hike this month, the US rate market now expects the Fed to deliver almost another 100bps of rate hikes in the year ahead which is reinforcing support for the US dollar from the positive terms of trade shock for the US economy from higher energy prices.”
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TAGS: Pound Dollar Forecasts
