Pound to Dollar: "Short-term Charts Reflect Better Selling Pressure Above 1.27"

January 19, 2024 - Written by David Woodsmith

STORY LINK Pound to Dollar: "Short-term Charts Reflect Better Selling Pressure Above 1.27"

The Pound to Dollar (GBP/USD) exchange rate briefly moved above the 1.2700 level in early Europe on Thursday, but failed to hold the gains.

Traders Buying Dollar Dips, GBP/USD Unable to Hold 1.2700 Despite Solid UK Data

Pound sentiment held firm amid evidence of stronger housing data and a re-pricing of Bank of England interest rate expectations, but the dollar recovered from early lows which pulled GBP/USD down to near 1.2650.

US jobless claims declined to 187,000 in the latest week from a revised 203,000 previously which was below consensus forecasts of 207,000 and the lowest reading since March 2023.

Continuing claims also declined to 1.81mn from 1.83mn the previous week.

The Philadelphia Fed manufacturing index improved to -10.6 for January from a revised -12.8 previously, but this was weaker than consensus forecasts of -7.0.

There were further sharp declines in new and unfilled orders as well as production.

There was no significant change in employment for the month while there was a notable easing in pricing pressures for the month.

Companies were less confident over the outlook while pricing pressures were mixed as companies expect stronger upward pressure on costs, but reduced potential for increasing output prices.

Elsewhere, housing starts retreated to an annual rate of 1.46mn from 1.53mn, but above expectations of 1.43mn with building permits at 1.50mn from 1.53mn previously.

Markets tended to focus on the jobless claims data and Treasuries lost ground after the data with the 10-year yield increasing to 4.13% and just above Wednesday’s highs and a fresh 1-month high.

According to Scotiabank; “Overall, I don’t think the USD will fall too far at the moment and dips remain a buying opportunity against the core majors. The short end of the US curve is still facing some repricing potential as markets adjust expectations for the March FOMC.”

Overall risk appetite remained fragile with only a small rebound in global equities on Thursday.

Nordea chief analyst Niels Christensen commented; "U.S. data has been a mixed bag but yesterday we got a very strong retail sales report indicating that there is no need to be too aggressive on rate cuts." Lower rate cut expectations and risk-off sentiment is positive for the dollar."

As far as UK data is concerned, the RICS house price balance, measuring the gap between the percentage of surveyors seeing rises and falls in house prices, improved to -30 for December from -41 in November.

This was stronger than consensus forecasts of -34 and equalled the highest reading for 13 months.

RICS senior economist Tarrant Parsons commented; "Supported by an easing in mortgage interest rates of late, buyer demand has now stabilised, and this is expected to translate into a slight recovery in residential sales volumes over the coming months."

He added; "The lending climate is set to remain restrictive compared to much of the post-global financial crisis era next year, meaning any uplift in activity is likely to be limited for the time being."

Markets were still reacting to Wednesday’s higher than expected inflation data with markets pricing in a first rate cut in June rather than May.

Markets also now expect four rate cuts by the end of 2024 compared with the five expected at the beginning of this week.

According to Nordea’s Niels Christensen; "In the U.S. and the euro zone you can see that inflation is coming down, but it's certainly less visible in Britain."

He added; "The bottom line is that it's a difficult spot for the Bank of England and they will have to wait a little longer for data before seeing whether they can cut in June as the market expects."

According to Scotiabank; “The GBP’s bullish reaction to yesterday’s test of the 1.26 range base in place over the past month is showing signs of petering out in the low 1.27s intraday, however, with the short-term charts reflecting better selling pressure merging above 1.27.”

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TAGS: Pound Dollar Forecasts