Tight FX Ranges Dominate Amid US Holiday, Pound to Dollar Rate Adrift

February 19, 2024 - Written by David Woodsmith

STORY LINK Tight FX Ranges Dominate Amid US Holiday, Pound to Dollar Rate Adrift

The Pound to Dollar (GBP/USD) exchange rate edged higher in early Europe on Monday with highs at 1.2630, but it failed to hold the gains and drifted lower later in the session with a move back below the 1.2600 level to trade around 1.2585.

Overall trading conditions were notably subdued with US markets closed for the President’s Day holiday.

Markets were continuing to digest the US growth and inflation data releases over the previous week.

The consumer prices and producer prices releases were both stronger than expected, reinforcing concerns that overall inflation pressures were proving stubborn.

According to MUFG; “The risk over the short-term must be that the inflation information last week will linger which could provide further upside scope for bond yields. It wasn’t just the CPI and PPI data. The NY Empire Manufacturing report revealed increases in both prices paid and prices received while 91% of the firms surveyed reported input prices as the same or higher.”

MUFG also noted that the prices paid in the New York business activity report moved sharply higher while the 1-year inflation expectations in the University of Michigan consumer confidence report held at 2.9% and compared with a small decline to 2.8%.

The bank added; “If we don’t see the expected further improvements in PMIs in Europe, the dollar could make more notable gains if inflation concerns continue to provide support for US bond yields, which seems likely over the short-term.”

Socgen noted that the retail sales data was weaker than expected and considered that the overall data flow was mixed.

With limited influences this week, the bank expects the dollar will be held in tight ranges in the short term.

ING noted that China disappointed markets following the week-long holiday. Asian bourses rallied 2.5% while Chinese markets were closed, but China's CSI 300 index could only manage a 0.6% gain while the Hong Kong Hang Seng index closed lower.

It added; “It may be that investors have to wait until early March for the Two Sessions meeting to see whether policymakers can pull any growth rabbits out of the bag.”

ING expects the dollar will weaken later in the year, but expects the US currency will stay strong for the rest of this month.

According to the bank; “Seasonal factors are supporting it, but Friday's release of strong January US PPI data warns that the 29 February release of the core PCE inflation data - the Fed's preferred reading - could also print a high 0.4% month-on-month and continue to thwart the disinflation trade.”

UK markets were subdued during the day, although the FTSE 100 index did manage a small gain on the day.

The latest Rightmove data recorded a 0.9% increase in house prices for February after a 1.3% increase the previous month.

There was also a marginal 0.1% annual increase in prices following six successive months of decline.

Tim Bannister, Rightmove’s director of property science commented; “Momentum to move in 2024 is continuing to build, but prospective sellers mustn’t get carried away. Buyers now have more choice of property for sale and many are still very price-sensitive, with mortgage rates remaining elevated.”

He still noted potential bumps on the road: “Sellers who are serious about moving this year would be well-advised to ride this wave of increased buyer confidence with an attractive asking price before any pre-election jitters or unexpected events dampen the momentum.”

Firm housing data will provide an element of Pound support, but the latest UK business confidence data on Thursday is likely to be more important for the Pound.

There are expectations that the services-sector index will expand at a slightly faster rate for February.

Consensus forecasts overall are that the US PMI data will edge lower from January levels. If this the case and UK data strengthens, the Pound will be in a stronger position to make headway.

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