– Written by
David Woodsmith
STORY LINK Pound-to-Dollar Forecast: Carry Trades Keep GBP Near 3-Week Highs
The Pound to Dollar exchange rate (GBP/USD) has held close to three-week highs around 1.3500 as exceptionally low market volatility continues to encourage demand for higher-yielding currencies. Sterling has been one of the beneficiaries of the carry-trade environment, although Wednesday’s US inflation data and renewed pressure on global bond markets could provide the next major test.
GBP/USD Forecasts: Close to 3-Week Highs
The Pound to Dollar (GBP/USD) exchange rate continues to trade around 1.3500 and not far from 3-week highs near 1.3530 seen on Monday. The Pound has continued to gain net support from the global interest in carry trades, especially with low volatility across most asset classes.
There are concerns over the bond market and Wednesday’s US inflation data will be watched closely.
According to UoB; “Upward momentum has improved slightly, and GBP could test 1.3555. Based on the prevailing momentum, a continued rise above this level appears unlikely. To keep the momentum going, GBP must hold above 1.3460.”
ANZ expects GBP/USD buying on dips; “we expect GBP/USD to trade in the 1.345– 1.355 range, as markets await a fresh catalyst. As such, any further paring back of Fed tightening expectations or renewed USD weakness is likely to translate into GBP strength, making pullbacks opportunities to buy rather than signalling a change in trend.”
MUFG commented on the impact of low volatility; “Equity market resilience in the face of global geopolitical uncertainties has helped to keep financial market volatility lower. FX volatility did pick up around the end of July, but this was primarily generated by the decision of the US and Japan to embark on joint intervention. With FX vol set to remain incredibly low, the outlook for carry in FX remains attractive.”
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ING also noted the positive short-term impact of low volatility, but also noted some concern over trends in the bond market.
According to the bank; “Longer-dated US Treasury yields are at the top of recent ranges and the tech industry is planning a lot more issuance. Nvidia announced yesterday it would partner with six investment houses to arrange $500bn of debt financing for its customers. Buy now, pay later. A sell-off in the bond market probably remains one of the key threats to a benign environment over the coming months.”
According to Standard Chartered; “Positive earnings and softening US bond yields have supported a breakout in major equity market indices. We see room for gains to extend, but would ensure portfolios avoid excessive regional or sector concentration.”
MUFG sees some risks to the dollar from the bond market; “US yields increased yesterday and 10-year and 30-year UST bond yields have more than retraced the drop on Friday due to the weaker jobs report.. The lack of confidence in how the Fed responds, created by Fed Chair Warsh’s communication style, remains a downside risk for the US dollar.”
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TAGS: Pound Dollar Forecasts
