Pound Sterling to Dollar Forecast: GBP Finds Support as BoE Cut Bets Rise

– Written by


Frank Davies

STORY LINK Pound Sterling to Dollar Forecast: GBP Finds Support as BoE Cut Bets Rise

The Pound to Dollar exchange rate (GBP/USD) is holding firm above the key 1.3500 support level after UK inflation slowed to 3.0% year-on-year, reinforcing expectations of a March Bank of England rate cut.

However, stubborn services inflation at 4.4% and resilient US data have prevented a deeper Sterling sell-off, leaving GBP/USD range-bound as markets reassess Fed and BoE policy trajectories.

GBP/USD Forecasts: Holds 1.35 Support

The Pound resisted selling pressure on the UK inflation data and the Pound also received a boost from a fresh record high for the FTSE 100 index. The dollar, however, secured net gains which undermined potential GBP/USD support and GBP/USD traded around 1.3540.

The 1.3500 area remains a key support area.

Scotiabank commented; “For GBPUSD, we are neutral awaiting a break of the local range bound between 1.35 and the mid-1.38s.”

Danske Bank has a 12-month GBP/USD forecast of 1.40 as the dollar loses ground.

ING global head of research Chris Turner commented; “Most people sold sterling quite hard yesterday and thought there was going to be some follow-through today with softer inflation numbers but they didn’t come in weaker across the board.”

He added; “Services CPI was a little bit higher than expected so I think sterling has got a little bit of reprieve on that.”

The headline UK inflation rate declined sharply to 3.0% from 3.4% the previous month, in line with consensus forecasts.

The core rate edged lower to 3.1% from 3.2%, but slightly above expectations of 3.0%. The services-sector rate fell only slightly from 4.5% to 4.4%.

According to Scotiabank; “The theme of stronger services inflation remains an important one for developed economy central banks more broadly, and today’s UK CPI report appears to be offering some near-term stabilization in BoE rate expectations following Tuesday’s disappointing jobs data.”

Markets are still confident that the Bank of England will cut interest rates at the March meeting.

The dollar held a firm tone in global markets with no fresh catalyst to add to short positions and an element of caution ahead of economic events..

ING commented; “After the European close, we will also see the release of the minutes of the January FOMC meeting, where a firm consensus around a pause should be evident. That could rein in current expectations of around 59bp of Federal Reserve easing this year, with ING’s house call at -50bp.”

Scotiabank added; “While broader USD sentiment (reflected in risk reversal demand) remains bearish, it does feel as if the bearish dollar mood has eased up somewhat as investors assess developments. US data reports have generally surprised positively in the past few weeks, something that the DXY has not reflected at all, and there is some uncertainty about Fed policy.”

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TAGS: Pound Dollar Forecasts