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Pound to Dollar Rate: Forecast to Trade in 1.2180/1.2400 Range say UoB

November 9, 2023 - Written by John Cameron


The Pound to Dollar (GBP/USD) exchange rate posted dipped to lows just below 1.2245 on Wednesday before a recovering towards 1.2300.

GBP/USD traded just above the 1.2300 level on Thursday as the dollar maintained a slightly softer tone and Bank of England (BoE) chief economist did not repeat comments that interest rates could be cut in the third quarter of 2023.

The dollar overall has lost ground since Wednesday’s US open amid a fresh decline in bond yields.

In comments on Wednesday, Philadelphia Fed President Harker called for stability in rates at this stage

According to Harker; "Holding the rate steady will give those lags time to catch up. It will allow us to make more measured and educated policy rate decisions."

ING noted; “Looking across asset markets the mood appears to be one of investors buying into the US slowdown. US rates remain at recent lows and there has been no concerted pushback from the Federal Reserve, yet, on this easing of financial conditions.”

It added; “Instead, we seem to be getting a core message from the Fed that the US labour market is moving better into balance - which can take some steam out of wage growth and broader inflation.”

According to the bank; “We have a mild preference today that the dollar can drift lower.”

HSBC is not convinced that the dollar will decline; “The exaggerated price action late last week suggests a positioning squeeze, but with the market now better balanced, we believe there is scope for the USD to extend its recovery.”

US data releases will also be important for market expectations.

Marc Chandler, chief market strategist at Bannockburn Global Forex commented; “Data next week is expected to show softening consumer price inflation and a decline in retail sales, which "feeds into the headwinds that people are talking about - the resumption of student loans, higher interest rates biting the consumer."

He added; "The dollar's rally, especially since July, was fuelled by a divergence and now we're going to get convergence - but not because of good news from overseas, but more because we're getting worse news from the U.S."

MUFG does not expect lower yields will trigger a Fed response at this stage; “We would be surprised if the recent drop in yields was sufficient to make the Fed signal with more confidence again that they plan to hike in December.”

It added that there have been relatively calm market conditions; “Unless there is a hawkish surprise from the Fed, market participants should remain confident that the Fed and other major central banks have now finished raising rates which is contributing to lower foreign exchange market volatility.”

At the margin, lower volatility will tend to dampen dollar demand and offer some support to the Pound.

MUFG did, however, add; “We are not yet convinced that the sharp US dollar sell-off at the end of last week will be sustained at least on a broad-based basis.”

In comments on Thursday, Bank of England Chief Economist Pill stated that inflation remains much too high and that maintaining a restrictive monetary policy is needed to meet the inflation target.

He also stated that there is no sign yet of a decisive turn in domestically driven services-sector inflation.

He did, however, add that interest rates did not need to increase to bear down on inflation.

Markets took note of comments on Monday when Pill indicated that a cut in interest rates was realistic in the third quarter of 2024. With no repeat of these comments on Thursday, the Pound secured a tentative bounce.

UoB commented; “From here, GBP is likely to trade in a range of 1.2180/1.2400.”

According to Scotiabank; “Steady downside pressure on the GBP may be easing on the short-term chart.”
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