– Written by
Frank Davies
STORY LINK Pound Sterling to Dollar Outlook: GBP Consolidates After Payrolls Rally
The Pound to Dollar exchange rate (GBP/USD) remained close to two-week highs around 1.3340 as investors continued to reassess the outlook for the US Dollar following last week’s disappointing labour market report. Although weaker payrolls data has tempered expectations of further Federal Reserve rate hikes, the Dollar remains well supported by relatively high US yields and resilient investor demand.
GBP/USD Forecasts: Near 2-Week Highs
After hitting 2-week highs around 1.3380 last week, the Pound to Dollar (GBP/USD) exchange rate has settled around 1.3340 on Monday.
The dollar was mixed following weaker than expected US jobs data last week, but overall sentiment surrounding the US currency remained firm as markets re-opened following the Independence Day holiday.
Pound influences remained limited at this stage with the 10-year bond yield edging down to 4.77% from 4.80% last week.
UoB still sees a firm underlying tone; “Overall, only a breach of 1.3280 would indicate that GBP is not rising further.”
CIBC expects GBP/USD will be held at 1.33 by the end of this year.
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There has been a limited shift in dollar sentiment following last week’s weaker than expected US jobs data. The increase in non-farm payrolls was held to 57,000 compared with expectations of around 115,000 while there was a big drop in the workforce.
City Index strategist David Scutt commented; “The risk-reward is no longer as one-sided as it was only a week ago.”
He added; “As such, for the first time in several months, I’m moving to a more neutral stance on (the dollar index). Respect what the price is telling you. Right now, it says the next move is no longer a one-way bet.”
ING noted that dollar sellers could still have a tough task; “G7 FX volatility is close to the lower end of long-term ranges and will be encouraging more interest in carry trades as we head into the heart of summer. Here, one-week dollar deposit rates are in the top half of the G10 table and are a reminder that short dollar positions need to be backed up by a strong story, which is simply not there at the moment.”
SocGen is positive on the dollar outlook; “We expect USD strength to persist through the second half of the year.”
Domestically, the economic outlook remains in the background for now, but there are still important underlying uncertainties.
Betting markets are pricing in just over a 50% chance that Miliband will be appointed Chancellor by Burnham.
Caxton FX currency analyst David Stritch commented; “Shockingly, Ed Miliband is the bookies’ favourite, quite why is difficult to say, with the former energy secretary and Labour party leader being well known for more fiscally expansive budget ideas than the Treasury is likely comfortable with.”
CIBC commented; “The PM designate needs to be careful not to confuse Gilt performance with confidence regarding the political/fiscal backdrop.”
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TAGS: Pound Dollar Forecasts
