Pound to Dollar Tech Outlook: “Short-term Price Movement Looks Mildly Positive" say Scotiabank

December 12, 2023 - Written by Tim Boyer

STORY LINK Pound to Dollar Tech Outlook: “Short-term Price Movement Looks Mildly Positive" say Scotiabank

Yield Spreads Edge Against the Pound After UK and US Data Releases, GBP/USD Exchange Rate Unable to Hold 1.2600

The Pound to Dollar (GBP/USD) exchange rate briefly spiked to 1.2615 after the latest US inflation data, but failed to hold the gains and quickly retreated to lows just below 1.2550 in choppy trading.

The dollar drifted lower into Tuesday’s New York open and briefly dipped after the US inflation data before regaining ground.

The data overall was close to expectations and did not provide further evidence that the Federal Reserve will be prepared to shift policy and consider rate cuts within the next few months.

UK wages data was also a limited net negative element for the Pound.

US consumer prices increased 0.1% in November compared with consensus forecasts of no change, but the year-on-year rate met expectations with a slight decline to 3.1% from 3.2%.

This was a 4-month low and close to a 30-month low.

Energy prices declined 2.3% on the month with a 5.4% annual decline

Core prices increased 0.3% on the month which matched expectations and the year-on-year rate held at 4.0%.

There was little change in market pricing for the Fed Funds interest rate with the chance of a March rate cut still seen at close to 50% and over 80% by May.

According to MUFG; “For the Fed to begin cutting rates next year, it will require further evidence of slowing inflation in the coming months and slower growth. The release today of the latest US CPI report for November will provide the next important test for market expectations of earlier and deeper Fed rate cuts.”

Citigroup commented; “(Fed Chair Jerome) Powell will likely continue to guide that rate cuts are not yet being considered but will not substantially push back on market pricing.”

According to ING; “we doubt that a core reading of 0.3% MoM and the YoY rate steady at 4.0% will be enough to drive the dollar substantially lower – especially given the risk of the Fed pushing back against 2024 easing expectations at its FOMC meeting tomorrow.”

Earlier in the day, the UK released the latest labour-market data.

The unemployment rate held at 4.2% in the three months to October while there was a small decline in payrolls for the month.

The main focus was on wages given the importance for the Bank of England.

Headline earnings growth slowed to 7.2% in the three months to October from a revised 8.0% previously and below consensus forecasts of 7.7%.

Underlying earnings growth slowed to 7.3% from a revised 7.8% and marginally below expectations of 7.4%.

UK economist Ashley Webb of Capital Economics commented; “Overall, the labour market remains tight by historical standards, but the sharp fall in wage growth will reinforce the growing belief in markets that interest rate cuts will start sooner rather than later.”

Michael Hewson, chief market analyst at CMC Markets UK disagreed with this view; “anyone who thinks the latest jobs numbers “is likely to prompt an earlier pivot from the Bank of England when it comes to rate policy is kidding themselves”.

According to ING; “This is heading in the right direction, but is still way too high for the BoE’s liking and adds to sticky service sector inflation. The latter has been a key factor preventing investors pricing a BoE 2024 easing cycle as large as those expected in the US and the Eurozone.”

Lloyds Bank added; “Overall, heading into Thursday’s Bank of England update, policymakers will probably be pleased with signs that labour market pressures are easing and that wage growth is slowing but will be aware that wage gains remain too high to be consistent with meeting the inflation target on a sustainable basis.”

Scotiabank considered the GBP/USD technical outlook; “Short-term price movement looks mildly positive, with spot edging above minor trend resistance (now support) at 1.2535/40 ahead of key, short-term support at 1.2505. Regaining 1.2600+ will add to the supportive look of the intraday chart.

International Money Transfer? Ask our resident FX expert a money transfer question or try John's new, free, no-obligation personal service! ,where he helps every step of the way, ensuring you get the best exchange rates on your currency requirements.

TAGS: Pound Dollar Forecasts