Pound To USD Forecast: Is Now A Good Time To Buy US Dollars With Pounds?

GBPUSD Forecast Highlights

• Sterling weakened below 1.3000 in October
• USD-strength is driving this rate lower, esp. on higher US rates
• GBPUSD is attempting to affirm 1.300 as support

How has the Pound performed against the Dollar recently?

Has the Sterling-Dollar exchange rate peaked? After hitting two-and-a-half-year highs, GBPUSD quickly reversed course. Prices are seemingly dropping as fast as they went up.

Cable, in late September, traded as high as 1.3420. As optimism faded, the exchange rate surrendered weeks of gain and now changed hands below the round number level at 1.3000 (see below). Chartwise, it appears that the last pivot low was taken out; this broke the pattern of higher lows.

What happened? Why did GBPUSD’s uptrend fail to sustain?  The primary reason for this new turn of events is that, for the past month, the US Dollar has strengthened significantly. A combination of several economic factors shaped traders’ perception of the world’s currency and ignited the dollar’s new trend.

If we use the Dollar Index as a crude proxy for its overall trend, we can see below that the instrument advanced non-stop for four consecutive weeks. Even to a casual reader, you know immediately that ‘something’s up’. DXY’s rally was especially powerful. The last time the index put in such a strong display was back in 2023 (see below). And remember, the dollar is a huge asset. Moving it in a new direction so forcefully takes a lot of buying.

Perhaps it was the 50bps rate cut that provoked widespread accumulation interest. Or perhaps it was fear about the global economy taking a dive in the last quarter. Or perhaps the dollar was just too oversold. Prices rebound sharply when investor sentiment turns.

Whatever the reason, GBPUSD may find it hard to continue its smooth advance like it did in the summer. Chances are high that 1.3450 marks the peak over the medium term (for the rest of the year). Of course, a rebound back into 1.320-1.330 is possible, but would depend on the dollar weakening.

Is it a good time to buy US Dollars with pounds?

Given that Sterling has weakened against the Dollar, should we sell GBP to buy USD?

If you need dollars now, selling some Pound Sterling to buy dollars might be a good idea as the rate is still hugging close to the 1.3000 level.

But if you can afford to wait for a rebound back above 1.300 this is not a bad strategy too. The decline from 1.3420 is ‘oversold’ in technical terms and may be due for a bounce. There is risk in waiting though, as the rate could stay in a sideways trend longer than anticipated.

Will the pound get stronger against the USD for the rest of 2024?

With two short months left in 2024, what is the outlook for the exchange rate? Despite the relatively narrow time frame, things can move fast.

The first important item coming up is the UK government’s budget (on October 30th). This event is closely watched as it is the first budget under Labour. Tax rises are on the card. The question is how much. In 2022, a mini budget caused havoc on markets. We may not see a repeat of this negative doom loop, but this coming announcement will impact deeply the local asset markets and Sterling. If things do not go according to plan, we may see a test of 1.2800 quickly.

Another point to watch is the US Fed meeting on November (7th). The last meeting in September ended with a 50bps rate cut. Will the central bank slash interest rate further? According to the latest FOMC statement, the Fed stated that:

“The Committee has gained greater confidence that inflation is moving sustainably toward 2 percent, and judges that the risks to achieving its employment and inflation goals are roughly in balance. The economic outlook is uncertain, and thee Committee is attentive to the risks to both sides of its dual mandate.”

So even the most important central bank in the world is sitting on the fence for bigger rate cuts. The market may have has heard this and is thus pushing interest rates higher. A quick look at the long-dated bond ETF – iShares Treasury Bond (TLT) – shows a steep drop in the past month. As bond prices and yields move inversely, the US 10-year interest rate rebounded from 3.6 to 4.2%. This is a sharp increase. Higher borrowing costs will eventually exert a drag on the real economy.

Overall, the market appears to be factoring in a neutral US Fed policy for the moment. This could be a cause for the modest appreciation of the dollar. Whilst short-term overbought, the dollar may strengthen further in light of the above, forthcoming, events. A choppy market lies ahead.

What is the GBPUSD forecast in weeks, months, and years?

GBPUSD’s modestly weak trend this autumn unwound much of the positivity accumulated earlier this year. Still, many forecasts are raised and a few of them sits above 1.300.

The interesting point from the panel of forecasters (taken back in 18 October) is that we’re seeing a bifurcation of the predictions. Using 1.300 as the starting point, half of them say ‘lower’; while the other say higher (see below). As we move further out, the range of forecasts is even wider.

For now, we just have to see where the market is willing to take the GBPUSD rate. Prices may regain 1.3000 as support; watch for a battle between supply and demand around this vicinity.

Source: fxstreet.com (Oct 2024)