Sterling Unable To Hold 2-Week Best Exchange Rate Levels
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Foreign exchange strategists at Scotiabank remain tentatively positive over the Pound Sterling outlook.
Analysts noted; “Recall that 1.2550 is the GBP’s 200-day MA so progressing above it should be GBP-positive. Minor GBP dips to the low 1.25 area should remain supported for now. Trends suggest a potential return to the 1.27 area still.”
The US data has continued to suggest that the economy could be losing momentum.
The inflation data remains problematic and markets still expect that the Federal Reserve will maintain a hawkish policy stance.
Further evidence of economic deterioration, however, could increase stagflation fears and put the dollar under pressure.
US Employment-related data will, therefore, be under close scrutiny this week.
US consumer confidence dipped to 97.0 for April, well below consensus forecasts of 97.0 while the March reading was revised down to 103.1 from the original reading of 104.7.
This was the lowest reading since July 2022.
The present situation index dipped to 142.9 from 146.8 previously while there was a sharp retreat in the expectations component to 66.4 from 74.0 in March.
This reading is substantially below the 80 level which is often a recession threshold.
Dana M. Peterson, Chief Economist at The Conference Board commented; “Confidence retreated further in April, reaching its lowest level since July 2022 as consumers became less positive about the current labor market situation, and more concerned about future business conditions, job availability, and income.”
She added; “Despite April’s dip in the overall index, since mid-2022, optimism about the present situation continues to more than offset concerns about the future.”
The US employment cost index, however, increased 1.2% for the first quarter of 2024 compared with expectations of a 1.0% increase.
According to ING; “US labour costs accelerated in the first quarter, led by the government sector, while hikes to state minimum wage levels contributed to higher private sector labour costs. This is the Federal Reserve’s favoured measure on labour market inflation pressures and provides further ammunition to justify a hawkish shift at tomorrow’s FOMC meeting.”
ING did, however, note that the quit rate, those employees leaving for new jobs has continued to decline which suggests that the labour market overall is cooling.
The Federal Reserve will announce its latest policy decision on Wednesday.
Scotiabank commented; “Markets are anticipating a hawkish tilt in the Fed’s policy statement and press conference tomorrow; that should be no great surprise following the run of higher-than-expected inflation data so far this year.
The bank also noted that Chair Powell is likely to reiterate that the latest data has not provided the Fed with greater confidence that inflation is moving to target.
According to Scotiabank; “That might all be enough to keep the USD supported within recent trading ranges but it is unlikely to be enough to drive significant, additional gains. I still rather think it’s a case of a strong, rather than a stronger, USD persisting for now.”
MUFG expects a relatively balanced stance; “We expect Fed Chair Powell to reiterate that the recent run of stronger US activity and inflation data will delay their plans to begin lowering rates into the 2H of this year. However, he is unlikely to completely drop plans for rate cuts.
Macquarie is more hawkish on rates and the dollar; “Fresh U.S. data has prompted our U.S. economist to push out his projection of the start of the Fed’s easing cycle to 2025 from December 2024.”
It added; “We don’t rule out that the next change may be a hike, which would prompt a new wave of broad-based U.S. dollar strength.”
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