– Written by
James Fuller
STORY LINK Pound Sterling to Dollar Forecast: Burnham Succession Hopes Offset Strong USD
The Pound to Dollar exchange rate (GBP/USD) recovered from 11-week lows near 1.3160 as hopes of a smooth leadership transition in the UK helped steady Sterling following Prime Minister Keir Starmer’s resignation.
Markets appeared encouraged by speculation that Andy Burnham could emerge as Labour leader without a prolonged contest, reducing immediate concerns over political uncertainty and fiscal policy.
GBP/USD Forecasts: Holds Above 11-Week Lows
The Pound to Dollar (GBP/USD) exchange rate dipped to 11-week lows near 1.3160 on Friday and came under further pressure on Monday before recovering to around 1.3240 amid hopes that there will be an uncontested transition to Prime Minister Burnham.
A firm dollar limited Pound support, especially with on-going chatter of a Federal Reserve rate hike. According to UoB; “as long as 1.3305 is not breached, there is still a chance for GBP to break below 1.3160.”
Any break below would increase the threat of a slide to 1.30
ING is cautious in expecting big dollar gains; “Near-term risks remain skewed to the upside, but we do not see last week as the start of a new strong dollar cycle.”
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UK political developments remain a key focus following Prime Minister Starmer’s decision to resign. There are very strong expectations that Andy Burnham will succeed Starmer with growing speculation that he will be the only candidate, lessening the risk of a bruising contest.
According to CIBC head of G10 currency strategy Jeremy Stretch; “The question is, is it going to be a coronation or a contest? If it’s a coronation, then I think we can see a little bit of a rally in gilts and/or sterling holding on.”
He added; “But if there’s a contest, then the danger would be that could involve various protagonists involving themselves, or being dragged into fiscal commitments that they would not otherwise have made, or not be comfortable with. So that would be much more problematic from a sterling perspective.”
The UK bond market rallied slightly with the 10-year yield around 4.81%.
Socgen’s Kit Juckes noted; “The medium-term reaction is that the market is going to get nervous at some point about fiscal policy. It’s more likely than anything else that sterling remains under pressure as we have higher inflation, higher rates and then we wait for the next round of news.”
He added; “The story is that the UK has not had enough growth and the dollar keeps rising.”
The outlook for interest rates will also be a key element after last week’s Bank of England policy decision.
MUFG has changed its position; “We now expect the BoE to leave rates on hold, unless second-round effects such as stronger wage growth begin to emerge.”
It added; “This leaves room for UK yields to continue adjusting lower, putting further downward pressure on pound performance particularly against the US dollar, as US yields are currently moving higher to price in additional Fed rate hikes.”
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TAGS: Pound Dollar Forecasts
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