STORY LINK Pound to Dollar Exchange Rate Week Ahead Forecast: 1.32 Next
MUFG expects the Pound to Dollar (GBP/USD) exchange rate will strengthen to 1.3600 at the end of the first quarter of 2025.
ING expect a retreat to 1.30 in the short term while the longer-term outlook remains opaque due to the US elections.
RBC Capital Markets expects GBP/USD to be capped at 1.35 over the longer term despite dollar losses.
GBP/USD posted sharp losses during the week with a slide to below 1.31. Markets now expect a more aggressive Bank of England (BoE) stance on interest rates after dovish comments from Bank of England Governor Bailey while the reverse was the case for Federal Reserve policy.
The dollar drew support from Middle East tensions and, later in the week, by a much stronger than expected US jobs report.
BoE Governor Bailey stated that he was encouraged by the fact that cost of living pressures had not been as persistent as the Bank thought they might be. He said if the news on inflation continued to be good there was a chance of the Bank becoming a bit more activist in its approach to cutting interest rates.
Pill was significantly more cautious on inflation trends; “at present, there is ample reason for caution in assessing the dissipation of inflation persistence.
He added; “While further cuts in Bank Rate remain in prospect should the economic and inflation outlook evolve broadly as expected, it will be important to guard against the risk of cutting rates either too far or too fast.”
According to MUFG; “We still see scope for the BoE to pick up the pace of easing and assuming the ECB is cutting by 50bps in total and the Fed by 50-75bps, the BoE could be in a position to cut at the November and December meetings. Previously we had assumed Q1 next year would be when the pace of cuts picked up but we have now moved that forward to Q4 this year.”
RBC Capital Markets added; “we now see the MPC delivering two 25bps cuts to Bank rate at each of its two remaining meetings this year in November and December whereas we previously expected the MPC to sit out in December.”
US jobs data was notably stronger than expected with an increase in non-farm payrolls of 254,000 for September compared with consensus forecasts of 145,000 while unemployment dipped to 4.1% from 4.2% while wages growth was also above expectations
In response, markets ruled out the potential for another 50 basis-point rate cut at the November Federal Reserve meeting which boosted the dollar.
Danske Bank expects further dollar support; “With the Fed’s cutting path to neutral and US soft landing now priced to perfection, we see two-sided risks ahead. Either 1) further rise in recession concerns could start to weigh on cyclical FX or 2) US economic growth could once again exceed expectations of a clear slowdown towards year-end, which could support broad USD.”
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TAGS: Pound Dollar Forecasts
