ExchangeRates.org.uk – A downward GDP revision on Monday reinforced a cautious mood surrounding the UK economy while the dollar moved back towards 2-year highs despite weaker-than-expected consumer confidence data.The Pound to Dollar () exchange rate dipped to below 1.2520 and close to 6-month lows of 1.2475 seen last week.
According to Scotiabank (TSX:); The GBP’s short-term downtrend remains intact, putting key, short-term support at 1.2485/90 at risk in the short run.
It added; “GBP gains late last week stalled above 1.26 as strong selling pressure continues to greet minor GBP rallies.
A break under support in the upper 1.24s targets a drop to 1.23.”
The Pound to Euro () exchange rate hit a 1-week low at 1.2025 before recovering to 1.2055.
According to revised ONS data, GDP was unchanged for the third quarter of 2024 compared with the previous estimate of 0.1% growth.
There was also a small downgrade to the second quarter with annual GDP growth held to 0.9%.
The services sector failed to grow during the quarter, while a 0.7% increase in construction output was offset by a 0.4% fall in production.
According to the CEBR; “This data revision adds further evidence to the view that the UK economy is struggling for momentum and will come as a blow to the new Government, having made growth a policy priority.
The thinktank expects 0.9% GDP growth this year and 1.3% for 2025.”
Markets, at this stage, are pricing in two Bank of England rate cuts for 2025.
Scotiabank commented; “Stalled growth has not altered BoE expectations, with swaps reluctant to price in the next BoE cut until Q2.”
Investec (LON:), however, expects an eventual policy shift; “While interest rate markets are currently pricing in between two and three 25bp cuts in the policy rate over next year, we stand by our view of four, which would take the level of the Bank rate down to 3.75%.”
According to Danske Bank (CSE:); “If the BoE opts for a more front-loaded cutting cycle, this would act as a headwind for GBP.”
US consumer confidence dipped sharply to 104.7 for December from a revised 112.8 the previous month and well below consensus forecasts of 112.9.
Despite a dip in the assessment of business conditions, consumers were more optimistic over the labour market.
Conference Board Chief Economist Dana M.
Peterson commented; “While weaker consumer assessments of the present situation and expectations contributed to the decline, the expectations component saw the sharpest drop.
Scotiabank expects only limited and temporary dollar setbacks; “The first wave of the Trump trade boosting the USD may run out of legs as investors await the start of the President-elect’s term and a sense of his policy priorities.
But broader USD gains seem likely to extend into 2025 as markets re-evaluate the trajectory of the US economy and interest rate policy.”
This content was originally published on ExchangeRates.org.uk
