Pound to Dollar Forecast: "1.30 Could be the Surprise Package for Christmas" say ING

December 17, 2023 - Written by Ben Hughes

STORY LINK Pound to Dollar Forecast: "1.30 Could be the Surprise Package for Christmas" say ING

Pound Sterling Boosted by PMI Services-Sector Surprise, GBP/USD Exchange Rate Re-Tests 3-Month Highs

The hawkish Bank of England rhetoric and a more dovish Federal Reserve policy stance has continued to provide net Pound support in global currency markets.

The UK currency also secured a further kicker from stronger-than-expected PMI business activity data on Friday.

The Pound to Dollar (GBP/USD) exchange rate spiked higher after the data and re-tested 3-month highs just below the 1.2800 level.

Another important element has been a general boost to risk appetite amid hopes that a more dovish Federal Reserve policy will help underpin the global economy.

GBP/USD has been hampered to some extent by a Euro retreat following weaker-than-expected Euro-Zone data.

After testing 1.1000, the Euro to Dollar (EUR/USD) exchange rate retreated to 1.0965.

According to ING; “1.2820/2850 is decent resistance for cable above which 1.30 could be the surprise package for Christmas.”

The Pound secured further net support after the latest UK business confidence data.

The UK PMI manufacturing index retreated to 46.4 for December from 47.2 and below consensus forecasts of 47.2.

The services-sector index, however, strengthened to 52.7 from 50.9 previously which was above market expectations of 51.0 and the highest reading for six months.

Dr John Glen, CIPS Chief Economist commented; “A revival in the services economy is helping the UK’s private sector end the year on a more positive note. However, the persistent nature of inflationary pressures and the continued struggles in manufacturing add a tone of caution as we look ahead to 2024.”

He added; “The increase in input costs shows inflation is proving stickier than hoped and indicates there is still some way to go before costs stabilise. An easing of inflationary pressures and a more robust return of customer demand will be high on the private sector’s wish list as we head into 2024.”

According to Rhys Herbert, senior economist at Lloyds Bank; “Another rise in output in December is in line with the more optimistic outlook as we approach 2024. Recent industry data has shown an uptick in business confidence, including our latest Business Barometer, which showed services sector confidence at a two-year high, and that optimism among manufacturing firms is the highest it’s been for five months.”

He also expressed some reservations over the outlook with the risk that confidence will falter.

He added; “While these positive signs are good news for businesses when it comes to future activity, we’re continuing to see business caution around the current economic climate given the delicate balancing act the Bank of England will have to consider with its interest rate decision-making next year.”

In its latest update, Halifax considers that UK house prices are likely to decline 2-4% in 2024.

Kim Kinnaird, director of Halifax Mortgages commented; “Overall, with the combination of cost of living pressures and interest rate levels that are still much higher than even two years ago, we will likely see continued mild downward pressure on house prices.”

City Index strategist Fiona Cincotta noted the boost to global confidence; "There was an element of surprise - the extent to which the Fed has gone with giving the market what it wants. Christmas came early."

She also warned over that markets are being complacent over the outlook given the risk that the US economy could suffer a sharp downturn in activity or that inflation will increase again.

According to Cincotta; "There is potential for some further U.S. dollar weakness, but I think the concern is that if the Fed does let up too quickly, we can get that return in inflation. It's a scenario we have seen before and it's going to weigh on investors' minds - not immediately, as we're still in the euphoria of the decision."

TD Securities was more confident over the outlook; “Relative interest rate differentials can support GBP vs. the currencies of more dovish central banks in the G10 space.”

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TAGS: Pound Dollar Forecasts