– Written by
Frank Davies
STORY LINK GBP to USD Forecast: Pound Sterling Tests Top Before Fed, BoE Risks
The Pound to US Dollar exchange rate (GBP/USD) edged up to around 1.3385 as the dollar softened ahead of a packed week of US and UK events.
A clear break above last week’s highs near 1.3430 is needed to unlock stronger bullish momentum, but thin year-end liquidity risks choppy trading.
Focus now turns to US jobs data and Thursday’s BoE decision for direction.
GBP/USD Forecasts: Creep Towards 1.3400
The dollar has retreated on Monday with the Pound to Dollar rate edging higher to around 1.3385.
GBP/USD will need to break above 7-week highs above 1.3430 last week to generate more bullish sentiment and increase the potential for a covering of short positions.
There is the risk of choppy trading as liquidity starts to decline into the year-end period and there are a large number of market-moving events on both sides of the Atlantic this week with the risk of substantial Pound moves.
Save on Your GBP/USD Transfer
Get better rates and lower fees on your next international money transfer.
Compare TorFX with top UK banks in seconds and see how much you could save.
Nordea commented; “Poor market liquidity around Christmas could be influencing the market. It would not be a big surprise if expectations quickly shift back and strengthen the dollar.”
The delayed US jobs report for November is scheduled for release on Tuesday.
Consensus forecasts are for an increase in non-farm payrolls of around 50,000 after a reported 119,000 gain the previous month with the unemployment rate edging to 4.5% from 4.4% which would be the highest rate for four years.
There is, however, a high degree of uncertainty, especially given the impact of the government shutdown and potential cuts in Federal government jobs.
ING commented; “Any softer-than-expected data here could bring forward pricing of the next Fed rate cut. We think the Fed can cut again in March, which is priced with just a 33% probability currently.”
According to MUFG; “Momentum has certainly turned more negative for the US dollar after the broad-based sell-off this week following the FOMC meeting on Wednesday. The US NFP data for October and November will be released on Tuesday and will determine whether this negative momentum is sustained.”
It added; “We see greater risks of further employment weakness and a continued slide for the dollar into year-end.”
As far as interest rate expectations are concerned, markets are pricing in just over a 25% chance that the Fed will cut rates again at the January policy meeting.
The dollar will be vulnerable if the data or Fed comments trigger a jump in expectations for a January move.
Danske Bank, however, commented; “We think the USD has likely reached its near-term limits for how much dovish Fed repricing can weigh on it.”
Domestically, markets remain very confident that the Bank of England will cut interest rates this Thursday.
Ahead of the decision, the latest jobs and inflation reports are also scheduled which could shift market expectations.
Rabobank commented; “We expect the Bank of England to cut the Bank Rate by 25 basis points to 3.75% at its December meeting, as inflation continues to surprise on the downside and labour market weakness, combined with slowing wage growth, eases concerns about persistent price pressures.”
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
