Pound Stays Firm Around 1.3340
The Pound to Dollar exchange rate remained close to recent two-week highs on Monday, trading around 1.3340. The move came as investors continued to reassess the outlook for the US Dollar after last week’s weaker-than-expected labour market report.
Recent Peak Near 1.3380
GBP/USD reached two-week highs around 1.3380 last week before easing back toward 1.3340. The pair continues to hold a firmer tone, even though the Dollar has not weakened decisively following the Independence Day holiday.
US Jobs Data Changes the Rate Debate
The latest US non-farm payrolls report showed an increase of only 57,000 jobs, below expectations of around 115,000. The data also included a large drop in the workforce, reducing expectations that the Federal Reserve will move ahead with further interest rate hikes.
Dollar Still Supported by Yields
Despite the softer labour market figures, the Dollar remains underpinned by relatively high US yields and continued investor demand. This has limited the downside for the US currency and kept GBP/USD from extending its rally more aggressively.
Analysts Turn More Balanced on the Dollar
City Index strategist David Scutt said: “The risk-reward is no longer as one-sided as it was only a week ago.” He added: “Respect what the price is telling you.”
Carry Trades Could Limit Dollar Selling
ING noted that low G7 foreign exchange volatility could encourage more interest in carry trades during the summer. The bank also warned that short Dollar positions still need a strong supporting argument, which it said is not clearly present at the moment.
SocGen Expects Dollar Strength to Continue
SocGen remains constructive on the US currency. The bank said: “We expect USD strength to persist through the second half of the year.”
Pound Drivers Remain Limited
Domestic UK influences have been relatively muted for now. The UK 10-year bond yield edged down to 4.77% from 4.80% last week, while the broader economic outlook remains in the background.
Technical Picture Still Supports Sterling
UoB continues to see a firm underlying tone for the Pound. The bank said: “Overall, only a breach of 1.3280 would indicate that GBP is not rising further.” That level remains an important marker for near-term sentiment.
Year-End Forecasts Point to 1.33
CIBC expects GBP/USD to remain close to current levels, forecasting the pair at 1.33 by the end of this year. That outlook suggests limited upside unless Dollar sentiment weakens more clearly or UK-specific support improves.
UK Political Uncertainty Stays in Focus
Markets are also watching the developing UK political backdrop. Betting markets are pricing in just over a 50% chance that Ed Miliband will be appointed Chancellor by Burnham.
Questions Over Fiscal Direction
Caxton FX currency analyst David Stritch said: “Shockingly, Ed Miliband is the bookies’ favourite, quite why is difficult to say.” He noted that Miliband is associated with more fiscally expansive budget ideas than the Treasury may prefer.
CIBC Warns on Gilt Signals
CIBC also cautioned that the incoming political leadership should avoid reading too much into recent gilt market performance. The bank said: “The PM designate needs to be careful not to confuse Gilt performance with confidence regarding the political/fiscal backdrop.”
