December 1, 2024 – Written by James Fuller

STORY LINK Pound to Dollar December Forecast: Trump Trade but Upside Still Expected

After an initial retreat to below 1.25, Bank of America (BoA) expects the Pound to Dollar exchange rate (GBP/USD) to strengthen to 1.38 at the end of 2025 with a further surge to 1.49 at the end of 2026.

ING, however, expects dollar strength to dominate and has a 12-month GBP/USD forecast of 1.24.

After posting gains for 8 successive weeks, the dollar succumbed to profit taking during the week.

In this context, position adjustment ahead of the Thanksgiving Holiday was a key factor.

Seasonal factors could play a significant short-term role.

Danske notes the risk of near-term dollar losses; “December has historically been the most bearish month for the broad USD, with an average monthly decline of 0.8%.”

There were no major US data releases during the week, but policy expectations surrounding a Trump Administration remained a key talking point.

Trump threatened to impose tariffs of 25% on imports from Mexico and Canada on day one of the new Administration which rattled markets.

According to ING; “Investors and corporate treasurers think they know what Donald Trump will mean for the dollar, having seen this film before in 2018-2019. European FX in particular looks the most vulnerable.”

Nordea expects upward pressure on yields; “We think strong economic activity and inflation above 2% inflation combined with an increasing budget deficit could move the US 10-year government rate back up toward 5% from its current level at 4.40%.”

The bank added; “It is hard to know how much the currency will offset the next iteration of tariffs, but we think that it could lead to a substantial appreciation of the dollar. This makes us more comfortable with our bullish dollar forecast.”

It sees a risk of GBP/USD trading below 1.20 next year.

Rhetoric from Bank of England officials maintained expectations of a very cautious stance and only slow interest rate cuts.

BoA expects the dollar will fail to hold initial gains and is bullish on the Pound.

On Sterling, it commented; “Heading into the new year, we have made some adjustments to our GBP profile to highlight our conviction that further upside is likely over the medium-term.”

As far as the dollar is concerned it noted; “Our baseline assumes that the USD will remain strong in the first half of next year, on the back of US tariffs, resilient US economy, and Fed stopping rate cuts early.”

The bank, however, expects that the dollar will retreat later in the year. It added; “This assumes that the US economy eventually resumes its landing, with some of the negative implications of trade protectionism also taking hold.”

HSBC maintains a bullish medium-term dollar stance; “In our opinion, the case for USD strength through 2025 is robust. It is based on expectations of fiscal stimulus and heightened import tariffs that together may slow the pace of Fed easing and keep interest rates elevated.

It added; “If the rest of the world is still languishing, at least in relative terms, then the USD is likely to remain strong.”

HSBC is, however, cautious over near-term trends; “Despite our belief in a strong USD through next year, we are a little wary of just how quickly it has strengthened.”

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TAGS: Currency Predictions Pound Dollar Forecasts

Fundamental Analysis & Market Sentiment

I wrote on 24^th November that the best trade opportunities for the week were likely to be:

• Long of Bitcoin in USD terms following a daily (New York) close above $100,000. This did not set up.
• Short of the EUR/USD currency pair. The price rose by 1.53% over the past week.
• Long of the NASDAQ 100 Index following a daily (New York) close above 21,139. This did not set up.
• Long of the S&P 500 Index following a daily (New York) close above 6,002. This set up on Tuesday and gave a profit of 1.85%.

The weekly gain of 0.32% equals 0.08% per asset.

Last week’s key takeaways were:

1. US Core PCE Price Index – this came in exactly as expected.
2. US CB Consumer Confidence – this came in exactly as expected.
3. US Preliminary GDP – this came in exactly as expected.
4. US FOMC Minutes – language reflected a desire to make “gradual” rate cuts. This increased expectation is that the Fed will cut rates by another 0.25% at its meeting later this month, so it had a dovish effect which helped weaken the USD.
5. German Preliminary CPI (inflation) – as expected, showing a month-on-month decrease of 0.2%.
6. Australian CPI (inflation) – this was considerably lower than expected, showing an annualized rate of 2.1% when it was widely expected to rise to 2.5%. That helped make the Aussie the weakest currency last week, on the increased sentiment this would be hawkish concerning rate cuts.
7. Canadian GDP – this was lower than expected, showing a month-on-month increase of only 0.1% when an increase of 0.3% was widely expected.
8. Reserve Bank of New Zealand Official Cash Rate, Rate Statement, and Monetary Policy Statement – the Bank cut its rate by 0.50% as was expected.
9. Chinese Manufacturing PMI – this came in as expected.
10. US Unemployment Claims – this came in as expected.

Apart from the inflation data, there were no data points last week that were truly interesting to the market, and even inflation is no longer the concern it was some months ago. Markets are more interested right now in global growth and the likely appointments of the upcoming Trump administration, which will take power in January. We saw US and European stock markets gaining again last week as risk sentiment in parts of the world improved, with the broad US S&P 500 Index rising to make a fresh all-time high last Friday.

The Week Ahead: 2^nd – 6^th December

The coming week’s schedule is lighter than last week and will likely be dominated by US Non-Farm Payrolls data on Friday.

1. US Average Hourly Earnings
2. US Non-Farm Employment Change
3. US Unemployment Rate
4. US JOLTS Job Openings
5. US ISM Services PMI
6. US ISM Manufacturing PMI
7. Swiss CPI (inflation)
8. Australian GDP
9. US Unemployment Claims
10. Canadian Unemployment Rate

Monthly Forecast December 2024

I made no monthly forecast for November, as the long-term trends in the Forex market were too unclear.

For the month of December, I forecast that the EUR/USD currency pair will fall in value.

Weekly Forecast 1^st December 2024

This week, I forecast that the AUD/JPY and CAD/JPY currency pairs will rise in value, as they fell by such unusually large amounts last week.

Last week, the Japanese Yen was the strongest major currency, while the Australian Dollar was the weakest. Volatility rose last week, with two-thirds of the most important Forex currency pairs and crosses changed in value by over 1%.

You can trade these forecasts in a real or demo Forex brokerage account.

Key Support/Resistance Levels for Popular Pairs

Technical Analysis

US Dollar Index

Last week, the US Dollar Index printed a bearish candlestick that reversed the recent breakout to back underneath the resistance level at 105.81, as well as the upper trend line of the formerly dominant consolidating triangle chart pattern, which can be seen in the price chart below. The price fell sharply from the new 2-year high which was printed the previous week and closed not far from its low of the week. These are bearish signs, but it should be noted that the price is above its levels from three and six months ago, suggesting a long-term bullish trend in the greenback that should be exploitable.

I have plenty of technical and fundamental reasons to be bullish on the US Dollar. However, the upside over the coming week might be limited, so long-term trades long of the USD might be more successful than short-term trades.

Bitcoin

Bitcoin saw a week of modest gains after it hit a record high just shy of $100,000 the previous week, then made a retracement deep enough to shake out many long positions. The price now seems to have resumed its climb towards the record high and $100,00.

The strong long-term bullish trend is something worth paying attention to, and it has been given a tailwind by the Republican victory in the recent US elections. I thought that $100,000 might be hard for the price to overcome and this still looks likely to be a pivotal point over the coming days or even weeks.

I am prepared to go long again of Bitcoin, having taken in my long trade from the $75k area after the price retraced to about $91k, but I want to see a daily (New York) close above $100,000 before entering such a new trade.

EUR/USD

Last week, the EUR/USD currency pair printed a relatively strong bullish candlestick, rebounding from the lowest weekly close seen in almost two years which was made the previous week. The price is still below its levels from both 3 and 6 months ago, which is my preferred metric for calling a long-term bearish trend. The US Dollar Index is also in a long-term bearish trend. A final bearish filter is that the 50-day moving average is below the 100-day moving average, which validates the trend.

There are plenty of reasons to be short here, but I am a bit concerned about the strength of the bullish inflection from the recent multi-year low. On the other hand, this currency pair tends to make deep retracements within even its strongest trends.

I am prepared to enter new short trade from any rejection of a resistance level below $1.0620.

USD/JPY

Last week, the USD/JPY currency pair printed a very strong bearish candlestick, which was unusually large and closed right on its low.

These are bearish signs, or at least signs of bearish momentum. The Japanese Yen was the strongest of all the major currencies last week. However, this seeming bearish reversal occurred at a multi-month high price, when this pair seemed to be preparing to establish a new long-term bullish trend.

There is a lot of volatility in the Japanese Yen and there has been for many months, making Yen pairs and crosses very interesting for day traders.

I cannot predict long-term direction here, but I can predict that anyone who is good at short-term trading and who needs volatility to profit would do well to be interested in this currency pair and maybe some of the Yen crosses too.

USD/CHF

I expected that the USD/CHF currency pair would have potential support at $0.8805.

The H1 price chart below shows how the price action rejected this support level with an hourly inside bar, which followed a doji candlestick, marked by the up arrow within the price chart below. This rejection occurred right at the end of the London session last Wednesday, which can often be a great time for reversals in the US Dollar.

This trade gave a maximum profit of approximately 1.5 to 1.

This currency pair has been quite strongly positively correlated with the EUR/USD currency pair lately.

S&P 500 Index

Last week saw the S&P 500 Index rise again to reach a new record high, and it closed the week quite near the high, which is a bullish sign. There is no sign more bullish than the fact that the price is trading bullishly in blue sky.

US stock markets are leading global equities, which is nothing unusual, boosted by President Trump’s reputation as doing anything to generate economic growth and stock market growth, as well as his announcement of his intention to put strong tariffs on imports from Mexico and China.

Maybe more importantly, the US stock market has been in a strong bullish trend for over one year now, so there is plenty of momentum supporting last week’s bullish move.

I see the S&P 500 Index as a buy.

USD/BRL

Last week saw the USD/BRL currency pair rise strongly to make a new all-time high price, before it gave back some of its gains to close just below the previous record high made in 2020.

In other words, the Brazilian Real is in trouble and is reaching record lows.

The only note of caution for bulls here would be the fact that the price was unable to close above the 2020 high.

Many brokers do not offer the BRL to trade, and the very high overnight swap rates that come with being long of the BRL as a CFD can be a deterrent to trading this key emerging currency. However, anyone with BRL holdings might want to think about getting out or at least hedging the currency risk.

Brazil has taken quite an anti-American position in recent months, throwing its lot in fully with the BRICS countries and implying an alternative to the USD. One has to wonder what President Lula has said to President-Elect Trump in recent days, as its hard to imagine President Trump allowing such actions to go by unpunished. That may be contributing to the weakness of the Real.

USD/INR

Last week saw the USD/INR currency pair rise to make a new all-time high price, and it closed near the high of the week, painting a very bullish technical picture as it trades in blue sky. This has happened for each of the last few weeks.

The Indian Rupee is relatively weak and is reaching record lows.

Many brokers do not offer the INR to trade, and the very high overnight swap rates that come with being long of the INR as a CFD can be a deterrent to trading this key emerging currency. However, anyone with INR holdings might want to think about getting out or at least hedging the currency risk.

The relative weakness of the Indian Rupee is interesting because India’s economic metrics remain quite positive. This is likely partly due to relatively high inflation and interest rates, as well as the fear that India is so dependent upon manufacturing raw materials that it could be prone to very high levels of inflation if commodity prices spiral out of control again.

Bottom Line

I see the best trading opportunities this week as

• Long of Bitcoin in USD terms following a daily (New York) close above $100,000.
• Short of the EUR/USD currency pair following a strong bearish reversal below $1.0620.
• Long of the S&P 500 Index.

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• The US economy expanded by 2.8% as expected.

• The US core PCE price index increased by 0.3%, in line with expectations.

• Optimism over Trump’s win and policy changes faded.

The GBP/USD weekly forecast suggests a rebound in the pound as the fading Trum trade puts downward pressure on the greenback.

Ups and downs of GBP/USD

The pound had its strongest week since September as the dollar eased from its peak with the fading Trump trade. Data during the week showed that the US economy expanded by 2.8% as expected. Meanwhile, the core PCE price index increased by 0.3%, in line with expectations. Consequently, market participants were more confident that the Fed would cut rates in December. 

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Meanwhile, optimism over Trump’s win and policy changes faded, leading to a decline in the dollar and Treasury yields. Markets will now wait to see if Trump will pass his policy proposals in the coming year

Next week’s key events for GBP/USD

Next week, the UK will release figures on business activity in the manufacturing sector. Flash figures recently showed a slowdown in the economy, pushing market participants to increase the likelihood of a more aggressive Bank of England rate cut cycle.

Meanwhile, US reports will include the manufacturing PMI and nonfarm payrolls report. Recent flash PMI numbers robust business activity in November. Therefore, there is a chance this trend will continue, lowering the likelihood of a Fed rate cut in December.

Meanwhile, the nonfarm payrolls report will show the state of the labor market. If job growth remains slow like last month, it will increase expectations for a rate cut in December. On the other hand, if job growth jumps, the Fed might end the year with a pause.

GBP/USD weekly technical forecast: 1.2500 support prompts pullback

On the technical side, the GBP/USD price has rebounded to retest the 22-SMA resistance after finding support at the 1.2500 level. The rebound has also allowed the price to retest the 1.2750 resistance level. Therefore, there is a strong barrier for bulls which might see the price bouncing lower. 

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If bears return at the 22-SMA, they will aim to make a new low below the 1.2500, continuing the downtrend. On the other hand, there is a slight chance that bulls will break above the SMA next week. Such an outcome would signal a reversal and allow the price to revisit the 1.3007 resistance level.

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• The yen rallied on a higher likelihood of a Bank of Japan rate hike in December. 

• Core inflation in Tokyo increased more than expected. 

• US inflation figures came in line with expectations.

The USD/JPY weekly forecast supports further downside for the pair as the yen finds relief due to the increasing bets for a BoJ rate hike.

Ups and downs of USD/JPY

The USD/JPY pair had a bearish week as the yen rallied on a higher likelihood of a Bank of Japan rate hike in December. At the same time, the dollar eased as market focus shifted to the likelihood of a Fed rate cut in December.

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Data during the week revealed that core inflation in Tokyo increased more than expected. As a result, traders were pricing a higher chance that BoJ policymakers will hike rates by 25-bps in December. At the same time, US inflation figures came in line with expectations, solidifying bets for a December rate cut.

Next week’s key events for USD/JPY

Next week, traders will focus on economic reports from the US, including the manufacturing PMI and monthly employment figures. The PMI report will show the level of business activity in the manufacturing sector. 

Meanwhile, the employment report will show the state of the labor market. In the previous month, job growth slowed significantly to 12,000 raising fears of deterioration. Another downbeat month will solidify bets for a December rate cut.

USD/JPY weekly technical forecast: Bears face hurdle at 150.02

On the technical side, the USD/JPY price has reversed to the downside after finding solid resistance at the 156.06 level. Bears resurfaced at this resistance with a bearish engulfing candle that led to a break below the 22-SMA. At the same time, the RSI broke below the 50 level and entered into bearish territory. 

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However, the price must now start making lower highs and lows to confirm a new downtrend. At the moment, bears are facing strong support from the 150.02 level and the 0.382 Fib retracement level. A break below this support zone will allow USD/JPY to set its sights on lower support levels including 145.06 and the 0.618 Fib.

Meanwhile, if the  price breaks back above the SMA, it might revisit the 156.06 resistance. A break above would confirm a continuation of the previous bullish trend.

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Created on November 29, 2024

• The US dollar has bounced a bit during the early hours on Thursday, to turn things around against the Japanese yen.
• In my daily analysis of the USD/JPY pair, the first thing that comes to my attention is the fact that we had bounce from the 200 Day EMA from the previous session, which just happens to be right above the ¥150 level.
• The ¥150 level of course is a large, round, psychologically significant figure, and it is an area that we had previously seen resistance at.

All things being equal, this is a very strong uptrend, and I think that probably continues to be the case over the longer term, because of a whole slew of fundamental reasons. With this, I think you got a situation where traders are taken advantage of the interest rate differential, in the so-called “carry trade.” The “carry trade” has lost its luster over the last couple of weeks, so what we need to see is a little bit of financial stability. There are a lot of questions as to whether or not the Bank of Japan will do something to stabilize the yen, but really at this point in time anything that the Bank of Japan does will more likely than not be somewhat lackluster.

Going Forward

Going forward, I think you’ve got a situation where a lot of traders will continue to look for an opportunity to take advantage of the interest rate differential, and of course try to find some type of support near the ¥150 level. The ¥150 level is a major spot on the chart, and therefore I think you’ve got a scenario where a lot of traders are going to be paying close attention to this region. You probably have a lot of options traders there as well, so that comes into the picture also.

The size of the candlestick during the trading session on Wednesday was rather brutal, but the question now is whether or not that was a bit of a “washout” for the sellers. After all, there may have been a couple of different things going on at the same time. Not only would you have people trying to take advantage of a weakening US dollar, but you might have had a lot of US-based traders just simply collecting profit before the holiday.

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