February 23, 2025 – Written by David Woodsmith
STORY LINK Pound Sterling to Dollar Outlook: Retreat to 1.23 in One Month Timeframe
The Pound spiked higher in immediate response to much stronger-than-expected retail sales data, but it failed to hold the gains as underlying reservations surrounding the economy persisted.
Relentless geo-political stresses and major uncertainty over the Ukraine situation also curbed risk appetite and limited net Pound support in global markets.
The Pound to Dollar exchange rate (GBP/USD) hit 2-month highs just below 1.2680 before a retreat to just below 1.2650.
UoB sees scope for further net gains; “The boost in momentum indicates further GBP strength to 1.2730. On the downside, the ‘strong support’ level has moved higher to 1.2580 from 1.2525.”
ING, however, has a 1-month GBP/USD forecast of 1.23.
The Pound to Euro (GBP/EUR) exchange rate was little changed around 1.2070 with support ahead of the German elections this weekend.
The UK PMI manufacturing index dipped to a 14-month low of 46.4 for February from 48.3 the previous month and below consensus forecasts of 48.5 while the services-sector index edged higher to 51.1 from 50.8 previously.
Orders declined at the fastest pace since August 2023 while employment declined at the fastest rate since November 2020.
Strong upward pressure on wages triggered the sharpest increase in costs for 21 months, although there was a limited net improvement in business confidence.
Chris Williamson, Chief Business Economist at S&P Global Market Intelligence commented; “Early PMI survey data for February indicate that business activity remained largely stalled for a fourth successive month, with job losses mounting amid falling sales and rising costs.”
He added; “The lack of growth alongside rising price pressures points to a stagflationary environment which will present a growing dilemma for the Bank of England.”
Provisional data also indicated that the UK government had a surplus of £15.4bn for January from £14.6bn the previous year and the strongest January surplus since the current series began in 1993.
The surplus was, however, lower than expectations of a surplus close to £20bn
Capital Economics UK economist Alex Kerr still considers that Chancellor Reeves faces difficult choices; “While there is increasing pressure on the government to commit to higher defence spending, the OBR is likely to conclude that the Chancellor’s headroom against her fiscal rules has been wiped out and she will probably need to tighten fiscal policy as a result.”
UK retail sales volumes jumped 1.7% for January after a revised 0.6% decline for December and compared with consensus forecasts of a 0.4% increase.
The UK GfK consumer confidence index improved slightly to -20 for February from -22 previously.
According to Neil Bellamy, Consumer Insights Director, NIQ GfK; “The Bank of England interest rate cut on February 6th will have brightened the mood for some people, but the majority are still struggling with a cost-of-living crisis that is far from over.
He noted that confidence in the outlook remained weak and added; “Prices are still rising above the Bank of England’s target; gas and electricity bills remain a challenge for many households.. Politicians looking for bright spots on the horizon will be disappointed.”
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TAGS: Pound Dollar Forecasts
