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Pound to Dollar Outlook: "Bullish Alignment of Trend Oscillators" in Charts say Scotiabank Techs

November 24, 2023 - Written by David Woodsmith


The Pound to Dollar exchange rate (GBP/USD) posted fresh 10-week highs just above 1.2590 level just after the Friday Wall Street open and edged higher to just above 1.2600 after the latest US data.

The dollar overall has lost support against European and commodity currencies during the day.

A stronger reading for UK consumer confidence and short covering also helped underpin the Pound.

Overall trading volumes remained limited, especially with US markets only open for a limited session after Thursday’s Thanksgiving holiday.

The US PMI manufacturing index edged lower to a 3-month low of 49.4 for November from 50.0 previously and slightly below consensus forecasts of 49.8.

The services-sector index edged higher to a 4-month high of 50.8 from 50.6 and slightly above expectations of 50.4.

The composite output index was unchanged on the month.

The survey reported the first employment decline for over three years.

Input prices continued to rise, but at a pace that was the slowest since October 2020 and softer than the long-run series average.

A faster rise in overall selling prices was led by service sector firms in November, with the pace of charge inflation picking up from October’s three-year low.

Commenting on the data, Siân Jones, Principal Economist at S&P Global Market Intelligence noted an increase in orders, but added; “The upturn was historically subdued, however, amid challenges securing orders as customers remained concerned about global economic uncertainty, muted demand and high interest rates.”

She added; “Although ticking up slightly, selling price inflation remained subdued relative to the average over the last three years and was consistent with a rate of increase close to the Fed’s 2% target.”

Following the data, markets are slightly less confident that US interest rates have peaked and the chances of a cut in March 2024 edged lower to 22% from 25%.

Bank of England policy will also remain a significant focus amid an on-going push by the central bank against dovish market expectations.

In comments to the Financial Times on Friday, chief economist Pill stated that monetary policy was in a difficult phase amid stubbornly high price pressures.

He added that it was important to resist the temptation to declare victory and that key indicators such as services-sector inflation and pay growth remain at very elevated levels.

Following the BoE rhetoric this week, markets are less confident that the bank will engage in substantial interest rate cuts next year.

ING noted that markets have priced out around 20bp of cuts in the September 2024 contract in the past week. It added; “We expect GBP to keep its decent momentum.”

The overall situation remains finely balanced with transatlantic data releases remaining under close scrutiny.

Next week, there will be US ISM data from the US as well as the latest comments from Fed Chair Powell.

The UK data calendar is light, but there will be further comments from BoE officials.

Despite a slightly more positive week, Trade Nation senior market analyst David Morrison remained cautious over the UK outlook; "It's very difficult for the Bank of England, in particular, because the economic data hasn't been great - a bit like the euro zone - growth is pretty tepid and yet inflation remains way above target," he said. "I just don't see us escaping a recession here."

Scotiabank sees scope for further GBP/USD gains; “Sterling looks set for its highest weekly close since early September.

It added; “Gains in the Pound have overcome the 100 and 200-DMA over the past week or so and have the support of a bullish alignment of trend oscillators on the intraday, daily and weekly charts.”

Sterling will find support on minor dips (to the 1.25 area) in the short run and looks poised to extend its rebound from a technical point of view.

ING sees limited scope for GBP/USD gains; “We are still expecting some USD resilience and see a capped upside for Cable.”
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