Pound to Dollar: Forecasts see "Downside risks for GBP/USD," say ING

December 9, 2023 - Written by Tim Boyer

STORY LINK Pound to Dollar: Forecasts see "Downside risks for GBP/USD," say ING

Markets Consolidate Ahead of US Jobs Data, GBP/USD Exchange Rate at Risk of Testing 1.25

The Pound to Dollar (GBP/USD) exchange rate has been held in relatively narrow ranges during the past 24 hours with only a brief move above the 1.2600 level while there was support on approach to 1.2550.

The pair consolidated around 1.2580 on Friday.

In the near term, the US data will be a key element with the latest US employment report due for release on Friday.

Consensus forecasts are for an increase in non-farm payrolls of 185,000 for November after a 150,000 gain the previous month.

The unemployment rate is forecast to hold at 3.9% while the increase in average hourly earnings is forecast to be 0.3% to give a 4.0% annual increase.

MUFG notes the potential for further volatility on the release; “Anything very wide of the mark will drive yields notably and hence the US dollar.”

According to MUFG, there should be limited scope for dollar losses; “A bad print seems required for March easing to be added to or even possibly maintained. A consensus print or better could see some of the March 2024 easing come out of the market and with that we may see some further positive momentum for yields and the dollar into the close of this week and ahead of the FOMC next Wednesday.”

ING takes a similar view; “we suspect the US jobs market may still prove a bit more resilient than expected – triggering some unwinding of dovish Fed bets and supporting the dollar.

It added; “All in all, we see some upside risks for the dollar today.”

Credit Agricole commented; “Many negatives seem to be in the price of the USD by now, however, and we think that the currency could remain resilient in the absence of any significant downside surprises today.”

As far as the UK economy is concerned, the latest survey reported that consumers expect a 3.3% inflation rate over the next 12 months compared with a figure of 3.6% the previous month.

The headline data will offer some reassurance to the Bank of England (BoE), but there will be concerns over longer-term inflation expectations with consumers expecting that inflation will still be above target on a 5-year view.

The latest The Recruitment and Employment Confederation (REC) labour-market survey reported that the number of people looking for work increased for the ninth successive month, with the staff availability index at the highest for three years.

Hiring fell sharply with permanent staff placements dropping at the second-fastest pace since June 2020.

There was also a slowdown in starting salaries, especially for temporary jobs, with the lowest rate of increase since February 2021.

According to Clare Warnes, partner in skills and productivity at KPMG UK; “Employers are reining in hiring and continuing with redundancies in response to the sustained economic slowdown.”

The data should ease fears over wage pressures.

ING still expects that the BoE will adopt a relatively hawkish stance at next week’s policy meeting; “we expect Governor Andrew Bailey to push back against rate cut expectations at next week’s policy meeting, which should favour sterling’s performance in the crosses.

The Federal Reserve will also announce its latest policy decision next week and markets expect the central bank to push back against expectations of rate cuts.

Nordea considers talk of a March rate cut is premature; “We believe it take much longer before the Fed can be convinced that inflation is truly under control. With the US labour market still very much on a strong footing and US financial conditions now on the easy side, it will not take much for the economy to start firing up again.”

Hawkish rhetoric would help underpin the dollar.

Overall, ING sees downside risks for GBP/USD; “In line with our dollar view, we see downside risks for cable, which may ease back below the 1.2500 gravity line in the coming days.”

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TAGS: Pound Dollar Forecasts