Pound to Dollar Rate Outlook: Investors opt for safe haven Greenback

January 15, 2024 - Written by John Cameron

STORY LINK Pound to Dollar Rate Outlook: Investors opt for safe haven Greenback

The Pound US Dollar (GBP/USD) exchange rate faced headwinds on Monday as a spell of gloomy trade buoyed the safe-haven US Dollar (USD)

At the time of writing the GBP/USD was trading at $1.2718, down approximately 0.2% from this morning’s opening rate.

US Dollar (USD) Exchange Rates Strengthen amid Cautious Trade

The US Dollar (USD) firmed on Monday as escalating geopolitical tensions once again spooked global markets.

Jittery investors opted for the safe haven ‘Greenback’ on Monday’s session, as escalating conflict in the Middle East rocked trading conditions. Revived concerns that key commodities, particularly oil, may skyrocket in price served to boost a spell of cautious trade.

AJ Bell Investment Director Russ Mould commented: ‘An escalation of tensions in the Red Sea amid US and UK strikes on Houthi rebels raises the prospect of renewed inflationary pressures as the resulting disruption to global shipping pushes up freight costs. Oil prices continued to bubble but are below the $80 per barrel levels reached last week.’

While data remained thin on the ground for the remainder of Monday’s session, USD garnered investor interest due to its status as a stable investment option, as a continually gloomy market sentiment deterred investors from its more risk-sensitive peers.

Pound (GBP) Exchange Rates Muted amid Economic Pessimism

The Pound (GBP) dipped on Monday amid a lack of data of fresh economic data.
Sterling struggled to gain ground against most of its major peers throughout Monday’s session as a risk-averse mood stifled the increasingly risk-sensitive Pound.

Furthermore, last week’s bleak economic data releases continued to weigh heavily on GBP, as signs of economic sluggishness made the Pound a less than favourable investment option. Economists have expressed that there remains a lack of clarity surrounding the health of the UK economy, though the picture, overall, looks to be a bleak one.

Sandra Horsfield, an economist at Investec observed that the future of the UK economy remains uncertain: ‘It remains touch-and-go whether the economy tipped into a technical recession in the second half of 2023. In either case, a better description of the trend might be stagnation. The recession, if it did occur, looks to have been as mild as they come.’

Amid a lack of economic data for the remainder of Monday’s session, GBP wavered ahead of Tuesday’s impactful data reports.

Looking ahead, the UK’s unemployment date is due for release on Tuesday and is forecast to report a marginal uptick to 4.3% in November.

The latest wage growth data is also due for release on Tuesday, with average weekly earnings (including bonuses) in September-November forecast fall to 6.8%, down from the previous reading of 7.2%. Similarly, average earnings excluding bonuses for the same time period are expected to report 6.6% growth, down from 7.3%.

Should the data print in line with expectations, loosening in the UK labour sector may serve to stifle GBP on Tuesday, as investors bet on interest rate cuts in the first quarter of 2023 amid signs of continued economic slowing in the UK.

In the US, a speech from Fed hawk Christopher J Waller may drive USD movement amid a lack of notable US data releases. Should Waller strike a hawkish tone the ‘Greenback’ may attract investor support amid pared back rate cut bets. In the wake of last week’s warmer-than-expected inflation reports, the likelihood of a March rate may continue to wane, allowing USD to edge higher.

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TAGS: Pound Dollar Forecasts