Pound to Dollar Forecast From Here: "GBP Likely to Trade in Range of 1.2505/1.2725" say UoB

December 6, 2023 - Written by Tim Boyer

STORY LINK Pound to Dollar Forecast From Here: "GBP Likely to Trade in Range of 1.2505/1.2725" say UoB

GBP/USD Exchange Rate Focus Remains on 1.2600 Support After Mixed US Data

The US data failed to provide a decisive market trigger on Tuesday, although the bias remained for a tentative dollar recovery after a heavy sell-off during November.

The Pound to Dollar (GBP/USD) exchange rate again bounced from 1.2600 support, but struggled to make much headway and settled around 1.2620.

The US data was mixed, although the overall narrative supported the case for a soft landing in the US economy.

JOLTS data recorded a sharp decline in job openings to 8.73mn for October from a revised 9.35mn the previous month. This was well below consensus forecasts of 9.30mn and the weakest reading since March 2021.

The sharp slowdown in job openings will increase speculation of a weaker-than-expected employment report on Friday.

The ISM non-manufacturing index strengthened to 52.7 for November from 51.8 previously and compared with market expectations of 52.0.

There was a slightly faster rate of business activity for the month and solid growth in new orders. Employment increased only slightly on the month while prices increased at a slightly faster rate.

According to ING the dollar can creep higher; “Even in the event of figures broadly in line with consensus, short-term rate differentials continue to advise a moderate bullish bias on the greenback.

It added; “We suspect markets may be positioning ahead of next week’s Fed meeting, when Chair Jerome Powell may insist on his pushback against rate cut bets.”

MUFG added; “There is a risk that US yields and the USD could attempt to stage a relief rally if private employment growth exceeds the average over the last five months of around 140k.”

Macquarie's global foreign exchange and interest rates strategist Thierry Wizman commented; "The Fed will be reactive to the hard data and not anticipatory of it. So as long as the activity data deteriorates and inflation retreats, convergence toward lower yields will resume."

As far as the UK is concerned, the British Retail Consortium (BRC) reported that UK like-for-like retail sales volumes increased 2.7% in the year to November, unchanged from the previous reading and slightly above consensus forecasts of 2.5%.

The data is not adjusted for inflation and implied a significant decline in sales volumes.

According to Paul Martin, UK head of retail at accountants KPMG; "The cost-of-living crisis has taken its toll on Christmas spending for many households, and the continued economic conditions are testing consumer resilience."

The UK PMI non-manufacturing index for November was revised to 50.9 from the flash reading of 50.5.

Dr John Glen, Chief Economist at the Chartered Institute of Procurement & Supply (CIPS), commented; "After three months of continuous contraction, the services sector began to show signs of life with a small uplift in growth above the no-change 50 mark.”

He added; "There was also an end to the job losses recorded by service businesses every month since September so this could be another signal that this is the start of a more sustainable revival for 2024.”

Nomura economist Andrzej Szczepaniak considers that market pricing on UK rate cuts is not aggressive enough. He expects that the Bank of England will cut interest rates In August 2024.

On GBP/USD ING commented; "We still think that a convergence towards the key 1.2500 and even the 100 and 200-day MA at 1.2470 are more likely than a further rally given room for a dollar rebound, although US data means risks are quite binary."

UoB commented; “Upward momentum has faded, and GBP appears to have entered a consolidation phase. From here, GBP is likely to trade in a sideways range of 1.2505/1.2725.”

According to Scotiabank; “Intraday tests of the low 1.26 have been fairly easily rebuffed today although corrective momentum continues to develop in the short run after the pound’s recent peaks above the 1.27 point. Daily and weekly trend signals are bullish, suggesting limited scope for GBP losses to extend now.”

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TAGS: Pound Dollar Forecasts