Pound to Dollar Week Ahead Forecast: A Foothold Above 1.25?

Above: File still of Scott Bessent. Courtesy of Bloomberg.

The Pound has come under relentless pressure against the Dollar, but could be due some relief near-term.

The U.S. dollar is broadly softer at the start of the new week following weekend news Donald Trump had selected Scott Bessent as his Treasury Secretary, meaning we now have the CV of the man overseeing Trump's desire to raise import tariffs.

The Bessent pick is a clear nod to Wall Street experience, as Bessent is a well-known and successful hedge fund manager whom Elon Musk described as representing the status quo.

Musk is a disruptor and had some names he thought would be better at shaking things up at the Treasury, but it looks like the market doesn't share this appetite for risk.

The relief of Bessent's nomination is reflected in higher U.S. bonds and lower bond yields. This, in turn, is weighing on the U.S. Dollar.

"The hedge fund manager has been a proponent of free trade in the past. Thus, the fact that Trump is considering him for this position could mean that fears about Trump's tariffs are overdone," says Kathleen Brooks, an analyst at XTB.

If Bessent and Trump look to negotiate with the likes of China and Europe over trade, then there is less scope for the most extreme tariff scenarios to materialise.

The Dollar rallied during November as markets raced to 'price in' the Trump agenda, but now the win and his major appointments have come, it could be time for some retracement of recent moves.

GBP/USD investment bank consensus forecasts: The end-2024 and 2025 guide from Corpay has been released. It shows a sizeable uplift was made to the consensus forecasts for GBP/USD. Please request a copy here.

"We maintain our view that many positives related to Donald Trump’s victory at the US presidential election are already in the price of the USD," says Valentin Marinov, "we also note that FX investors’ love affair with the ‘Trump trade’ has pushed the USD into overvalued territory vs a number of G10 currencies."

This is a holiday-shortened week in the U.S., and the market focus will be on the Federal Reserve's preferred inflation measure, the U.S. core PCE deflator, due for release Wednesday.

"Recent CPI and PPI data has suggested that the recent inflation progress toward the Fed's 2% target has stalled and even gone into reverse in October," says Marinov.

Despite some sense that the Dollar is due to give back some of its recent strength, it must be noted that it is very much a momentum beast, meaning that once it starts going, it can be hard to stop.

For this reason, the Pound-Dollar exchange rate could still end the week lower than where it currently is on Monday.

Looking at the technical setup, all the key momentum signals are advocating for further downside, while the exchange rate also remains below its major moving averages.

The initial target is Friday's low at 1.2486, but we note that the RSI is at 30, meaning the exchange rate is still oversold.

The RSI must recover, which means we could see the recent selloff unwind somewhat, and there is a good chance that price action remains above the big 1.25 level.