Pound to Dollar Rate Forecast Revised HIGHER at Bank of America

February 15, 2024 - Written by David Woodsmith

STORY LINK Pound to Dollar Rate Forecast Revised HIGHER at Bank of America

US Dollar Grip Loosens Slightly After Weaker US Retail Sales Data, GBP/USD Exchange Rate Holds Above February Lows

The Pound posted limited losses after the latest UK GDP data before recovering some ground after the weaker-than-expected US retail sales data. The overall reaction was limited given that data also recorded a rebound in US business surveys.

The Pound to Dollar (GBP/USD) exchange rate hit lows near 1.2540, but held above month lows near 1.12520 and traded near 1.2570.

The UK currency still posted net losses on the main crosses.

Although Scotiabank considers the Pound vulnerable, it pointed to resilience over the past 24 hours and added; “While support in the low 1.25 area holds, the risk of a rebound remains; gains through 1.2575 would be positive for Cable.”

US retail sales declined 0.8% in January compared with consensus forecasts of a 0.2% decline while there was a downward revision to December’s data to 0.4% from 0.6%.

This was the largest monthly decline for 10 months.

Underlying sales declined 0.6% compared with expectations of 0.2% growth while the control group recorded a 0.4% decline.

JP Morgan pointed to some potential impact from seasonal adjustment factors. It noted; "It is hard to know exactly what the 'right' seasonal factor is for a given month but the seasonal factors associated with December 2023 and January 2024 look unusual relative to the ones associated with these months in earlier years."

Initial jobless claims declined to 212,000 for the week from a revised 220,000 and below expectations of 219,000, but continuing claims increased to 1.90mn from 1.87mn.

As far as business surveys are concerned, there was a strong rebound in the New York Empire manufacturing index with a rebound to -2.4 from -43.7 the previous month.

There was a rebound in all major metrics while prices increased at a faster rate on the month. Companies were slightly more optimistic over the outlook with inflation pressures expected to ease.

The Philly Fed manufacturing index also posted a notable improvement to 5.2 for February from -10.6 and compared with forecasts of -8.0.

Confidence in the outlook remained subdued while, in contrast to New York, prices are expected to increase at a faster rate.

The overall data releases were notably mixed, but markets tended to focus on the retail sales data and the dollar dipped after the batch of data.

Earlier in the day, the UK reported a 0.3% GDP contraction for the fourth quarter of 2023 which put the UK in a technical recession after a 0.1% decline for the third quarter.

Deutsche Bank chief UK economist Sanjay Raja commented; "While the Bank of England’s focus will likely remain on price data, the bigger drop in output and the politics of being in a technical recession will no doubt become uncomfortable."

ING is more confident over the UK outlook; “the general macro outlook is starting to look brighter. Green shoots are appearing in some of the survey data and most notably in the services purchasing managers index (PMI), which is now firmly in expansion territory.”

It noted that the Bank of England had adopted a cautious tone and added; “Data we’ve had so far this week, which showed stickier wage growth but lower than expected services CPI, is unlikely to change that assessment. For now, we expect the first rate cut to come in August.

This caution was illustrated by comments on Thursday from BoE MPC member Greene. She noted; "Recent signs of persistence starting to ease are encouraging," but added; "I would need to see further evidence that inflation persistence is less embedded than previously feared before I would consider voting to loosen policy."

Bank of America (BoA) FX strategist Kamal Sharma added; "elevated services inflation and tight labour markets should keep UK interest rates relatively high compared to other countries, supporting the pound.”

BoA has increased his end-2024 target to $1.37 compared to the previous $1.31 forecast.

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TAGS: Pound Dollar Forecasts