ExchangeRates.org.uk - The Pound overall has been unable to make further headway on Thursday despite European rate cuts and expectations of a US Federal Reserve move next week.The Pound to Dollar (GBP/USD) exchange rate was unable to make a fresh attack on the 1.2800 area and support was gradually eroded with a retreat to 1-week lows at 1.2680 after the New York open.
According to Scotiabank (TSX:BNS); “Short-term trend momentum is weakening, suggesting that the range trade may extend a little longer.”
A sustained break below 1.2700 would further erode confidence.
ING has a 3-month GBP/USD forecast of 1.25.
The Pound to Euro corrected to 1.2110 from 33-month highs at 1.2150 on Wednesday amid an element of Euro short covering following the ECB decision.
Scotiabank commented; “EURGBP has developed a minor gain from this week’s low near 0.8225.
Rebounds towards 0.8260/65 resistance are likely to attract sellers.
(GBP/EUR buying on dips to 1.2100).
The ECB cut interest rates by 25 basis points at the latest policy meeting with the deposit rate lowered to 3.00%.
The decision was in line with consensus forecasts, although there were some banks that were expecting a larger 50 basis-point rate cut.
Bank President Lagarde stated that risks to growth were still on the downside and added that there had been some discussion of a 50 basis-point move.
Staff projections forecast GDP growth of 1.1% for 2025.
ING considers that the growth projections are over optimistic and added; “Looking ahead, the risk for the ECB will now be that while it is still highly guided by the past mistake of underestimating inflation and reacting too late, it could now end up overestimating growth and being too late to react again.”
Following the meeting, there was a slight scaling back of 2025 bets on interest rates with expectations that rates would be above 1.75% by the end of next year which curbed further Euro selling.
US initial jobless claims increased to 242,000 in the latest week from 225,000 and above consensus forecasts of 21,000 while continuing claims also increased.
Producer prices increased 0.4% for December compared with expectations of 0.2% with the year-on-year rate at 3.0% from 2.6% previously.
Core prices increased 3.4% over the year, above expectations of 3.2%.
Danske Bank (CSE:DANSKE) remains wary over the near-term dollar outlook; “A potential downturn in economic data surprises combined with stretched long USD positioning and seasonality could weigh on the USD over the coming month.”
ING is more confident over the dollar prospects; “Despite seasonal trends for a weaker dollar, the dollar is actually holding onto gains quite well.
This is because the anticipation of Trump’s policy agenda is keeping dollar rate spreads wide and the currencies of trading partners under pressure.
It is hard to see this state of affairs changing before Trump’s January inauguration.”
This content was originally published on ExchangeRates.org.uk