November 29, 2023 - Written by John Cameron
STORY LINK Pound to Dollar Rate Technical Outlook Remains Positive: Scotiabank
The Pound to Dollar exchange rate held firm ahead of Tuesday’s New York open, but failed to make significant headway.
GBP/USD did, however, spike higher following dovish comments from Fed Governor Waller.
With risk conditions also improving, GBP/USD jumped to 12-week highs at 1.2710 as the Euro to Dollar (EUR/USD) exchange rate attempted to break above the key 1.1000 level.
The Federal Reserve has been relatively quiet over the past week, but there were important comments on Tuesday.
Fed Governor Waller stated that if inflation consistently declines, there is no reason to insist that rates remain really high.
He added that; “there are good economic arguments that if inflation continues falling for several more months, you could lower the policy rate.”
Waller still expressed some caution; "There is still significant uncertainty about the pace of future activity, and so I cannot say for sure whether the FOMC has done enough to achieve price stability. Hopefully, the data we receive over the next couple of months will help answer that question."
Nevertheless, this was a significant shift in stance.
In contrast, fellow Governor Bowman maintained a more hawkish stance; "My baseline economic outlook continues to expect that we will need to increase the federal funds rate further to keep policy sufficiently restrictive to bring inflation down to our 2% target in a timely way.”
Markets will be monitoring comments from Fed Chair Powell very closely on Friday to see whether he adopts a similar position as Waller.
Waller’s comments tended to dominate and traders remain very confident that rates will not be increased in December or January.
The chances of a March rate hike also increased to near 35% from 25% the previous day.
Treasuries also rallied with the 10-year yield at two-month lows around 4.35%
The 2-year yield also retreated to 4.80% from 4.85%.
There has been a clear shift in speculative positioning with the latest COT data released by the CFTC recording a slide in the net long dollar position to $4.5 billion in the week ending Nov. 14 from $10 billion the week before.
This was the sharpest decline in long dollar positions since July.
US consumer confidence was reported at 102.0 for November and above consensus forecasts of 101.0 while the October reading was revised sharply lower to 99.1 from the previous reading of 102.6.
The expectations component recovered significantly, but remained below the level which traditionally signals recession within 12 months.
According to Scotiabank; “High interest rates and signs of some slackening in the labour market are impediments for confidence.”
HSBC considers that the dollar will be resilient if the US data deteriorates. It noted; “We believe the window for US data weakness being negative for the USD is getting smaller, as any worse demand -side data could imply more of a slowdown that could hurt equities and damage risk sentiment, potentially lifting the USD.”
Equity markets posted renewed gains as yields declined with the FTSE 100 index erasing losses at the market close.
Lower US yields undermined the dollar and there was also a significant Pound impact from a rebound in risk appetite.
There is still significant caution within investment banks. According to JP Morgan; “Large USD weakness requires Fed cuts and better ex-US growth, but these conditions are not met yet.”
There is also likely to be increased confidence that the Bank of England will cut rates next year.
SocGen, however, considers that the GBP/USD technical outlook remains positive and a break above 1.2720 could challenge 1.2880.”
It considers that the 200-DMA at 1.2450 should cushion near term downside.
According to Scotiabank; “The short-term bull trend is showing some signs of tiring but underlying dynamics remain bullish and scope for losses appears limited at this point.
It added; “Sterling’s break above 1.2586 - the 50% retracement resistance of the July/October decline in the pound keeps the upside focus on a push higher to the low 1.27s.”
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TAGS: Pound Dollar Forecasts