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Pound Sterling Unable to Hold 11-Week Best Rate Against US Dollar

June 5, 2024 - Written by John Cameron


The Pound to Dollar exchange rate (GBP/USD) briefly hit 11-week highs just below 1.2820 around Tuesday’s European open as the dollar index (DXY) retreated to 8-week lows and touched the 104.00 level.

The Pound failed to hold the gains and retreated to around 1.2780 as the dollar recovered ground against European currencies with DXY rallying to 104.20.

Weak US data could trigger a fresh GBP/USD attack on resistance above 1.2800.

MUFG looked at the technical outlook for the dollar; “It has resulted in the dollar index breaking below support from the 200-day moving average at around 104.40. The next key support level is located at 104.00 which was tested and held in both April and May.”

The Pound was also hampered by less-confident risk conditions as equities moved lower.

UK data has continued to have only a limited impact, but the latest retail sales data again suggested some fragility.

British Retail Consortium (BRC) data recorded an increase in like-for-like retail sales of 0.4% in the year to April after a 4.4% decline the previous month, although this was below consensus forecasts of 1.2%.

BRC chief executive Helen Dickinson noted; “Despite a strong bank holiday weekend for retailers, minimal improvement to weather across most of May meant only a modest rebound in retail sales last month.”

Linda Ellett, UK head of consumer, Retail & Leisure, KPMG commented; “Over the coming weeks retailers will be hoping that warmer weather, purchases related to summer holiday demand and Euro 2024 provide a stimulus to get consumers buying again.”

She added; “The economy may be improving, but the health of the sector remains fragile, with major investment held back by many until there are clear signs that consumer confidence has turned into spending.”

Global economic and financial developments have continued to dominate Pound moves.

Monday’s US ISM manufacturing data was weaker than expected with the headline reading retreating to 48.7 for May from 49.2 previously and below consensus forecasts of 49.8.

There was also a weak reading for orders while prices increased at a slower rate and a small net increase in employment.

Rabobank commented; “So, higher prices, if less broadly than last month, far lower orders, and yet increased hiring? More head-scratching for some. Was this a data glitch or a feature?

There will be further important US data releases this week with a particular focus on the labour market.

On Tuesday, the latest JOLTS job-openings data will be released with consensus forecasts for a further retreat to 8.37mn from 8.49mn last month which would be the lowest reading for three years.

Details within the report will also be a significant element for market sentiment.

ING sees evidence of a weaker labour market; A further drop in the job vacancy rate today would then set the scene for a rise in the unemployment rate this summer. Recall the US unemployment rate is now 3.9%. We favour a scenario where this rises to 4.2% by September, prompting the Fed to cut.”

It added; “If the JOLTS data does indeed come out in line with the above, we think there is a chance for a decent move lower in the DXY.”

According to the bank; “This could be the start of a multi-week dollar bear trend.”

MUFG commented; “Overall, the latest developments have provided further evidence that the US economy has lost upward momentum at the start of this year which is beginning to put a dampener on US dollar strength.”

It added; “We see enough in other labour market data to assume a continued moderation in jobs and inflation that allows for rate cuts to unfold, by September most likely although even July remains just about feasible.”
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