Pound to Dollar Rate: "Struggled to Extend through 1.2700"

February 27, 2024 - Written by David Woodsmith

STORY LINK Pound to Dollar Rate: "Struggled to Extend through 1.2700"

The Pound to Dollar exchange rate (GBP/USD) was again unable to break the 1.2700 level on Tuesday and retreated to near 1.2660 after the New York open before settling around 1.2675.

GBP/USD needs to break 1.2700 to make further headway with markets looking at month-end trading to break the deadlock.

The dollar secured a net gain despite a significant decline in US consumer confidence.

Position adjustment will be important in the short term, especially with a lack of market-moving developments.

According to Credit Agricole; “We think that, in the absence of significant surprises from the data and/or Fedspeak, the outlook for the USD could remain a function of market risk sentiment and month-end FX flows.”

Month-end corporate dollar buying will support the US currency and tend to hamper GBP/USD in the very short term, but flows are liable to be more positive on Wednesday and Thursday.

Credit Agricole added; “Overall, the moves in equity markets, when adjusted for market capitalisation and FX performance this month, suggest month-end portfolio-rebalancing flows are likely to be moderate USD selling across the board.”

According to Roman Ziruk, senior market analyst at Ebury; “The pound continues to benefit from high short-term rates, as well as the modestly better economic data that we are seeing recently, at least compared to other European countries."

He added; “The consensus position at the Monetary Policy Committee (MPC) is that while rates have reached their cycle high, there is little appetite for immediate cuts, and the first cut will not come before the summer at the earliest."

Fiscal policy will be a growing focus ahead of the March 6th budget.

According to HSBC media sources suggest that; “the Chancellor is now reported to be considering a national insurance cut, with plans for cuts to income taxes, inheritance tax and extending free childcare shelved.”

The bank added; “Doves on the BoE may also have welcomed reports that tax cuts are likely to be modest.”

US consumer confidence was notably weaker than expected for February at 106.7 and compared with consensus forecasts of 114.8. There was also a significant downward revision for the January figure to 110.9 from the original reading of 114.8.

The present situation index declined sharply to 147.2 for the month from 154.9 in January while the expectations index retreated to 79.8 from 81.5.

This put the expectations index back below the important 80.0 level with readings below this level often signalling recession ahead.

Overall confidence in the labour market was slightly weaker for the month.

Dana Peterson, Chief Economist at The Conference Board commented; "The decline in consumer confidence in February interrupted a three-month rise, reflecting persistent uncertainty about the US economy.”

She added: "February's write-in responses revealed that while overall inflation remained the main preoccupation of consumers, they are now a bit less concerned about food and gas prices, which have eased in recent months. But they are more concerned about the labor market situation and the US political environment."

Elsewhere, durable goods orders declined 6.1% for January after a revised 0.3% decline previously and compared with expectations of a 4.9% decline.

The decline was led by a sharp dip in transport orders with underlying orders 0.3% lower.

The headline Richmond Fed manufacturing index improved to -5 for February from -15 previously and compared with expectations of -9.

Shipments and new orders components remained in contraction territory while there was a net easing of inflation indices for the month.

According to Scotiabank; “Sterling is registering a very mild net gain on the day so far, its sixth in succession, after Cable traded firmly above the 40-day MA yesterday.”

It added; “Trend momentum is mildly bullish on the intraday and daily DMI studies, suggesting spot should remain supported on minor dips. But Cable gains have struggled to extend through 1.2700/10 in the past few sessions. A push firmly above 1.2710 targets a move on to 1.2750/75.”

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TAGS: Pound Dollar Forecasts