The outlook for the British pound (GBP) has turned negative following the outcome of the much-anticipated Bank of England Quarterly Inflation Report (QIR) in the mid-week session.
The euro is currently enjoying strength against the US dollar which appears overbought at the present time. That said, forecasts below warn that ultimately further declines are likely.
The pound exchange rate complex was initially boosted on the release of unemployment and jobs data early on the 12th which showed the pay packets of the UK workforce was increasing at a faster rate than anticipated. Traders saw this as a sign that the economy was steaming forward and the BoE would be seriously considering its first interest rate hike.
The Bank of England were in focus an hour later and stumped traders when they cautioned they were in fact in no rush to raise the interest rate despite the strengthening economy.
Interest rate policy is the lynchpin on which the outlook for exchange rate markets hinge, so the QIR could set the tone for the pound against the euro, dollar and other currencies for coming months.
First, Exchange Rates Today (Thurs 13/11):
- The pound to euro exchange rate (GBP/EUR) is today 0.32 pct lower, on a day-to-day basis at 1.2646.
- The pound to dollar exchange rate (GBP/USD) is today 0.16 pct lower at 1.5755.
- The euro to dollar exchange rate (EUR/USD) is today 0.16 pct higher at 1.2458.
Please note that the above quotes will be subject to a discretionary spread by your bank, it can vary wildly from the market rate. If you are looking to make international payments we suggest being quoted by an independent provider. By tapping the wholesale markets they can offer up to 5% more currency in some instances.
Furthermore, you should avoid negative currency moves by ensuring the correct risk controls are in place, learn more.
British Pound to US Dollar Exchange Rate Forecast
Sterling rates have fallen in the wake of the release of the Bank of Englandโs November inflation report.
Governor Mark Carney said he did not expect inflation to reach the targeted rate of 2% for three years.
The Bank also cut its prediction for UK economic growth in 2015 to 2.9%.
That said, the Bank said it expected average salaries to be growing by 2% by the end of 2015.
Importantly, Carney gave no indication that the Bank had a date in mind for the first interest rate rise. Had he been a little more forthcoming we expect sterling would have rallied.
In the void, the pound has fallen.
Should we take a step back and look at the bigger picture we quickly see the GBP/USD pair remains in a longer-term downtrend trading below its bearish trend line, and last weekโs close at a new yearly low confirms the current trajectory remains negative.
"The MACD indicator is showing signs of rolling over from below the โ0โ level, suggesting that bearish momentum may soon return, while the Slow Stochastics are flirting with oversold levels. For now, the dominant bearish trend will keep the bias in the pair to the downside as long as rates remain below trend line resistance and the 20-day EMA near 1.60," says a note from the team at Forex.com.
Euro Forecast to Hit 1.10 Against US Dollar
An interesing forecast note for the euro dollar has landed on our desk today courtesy of Jonathan Webb at Jefferies:
"The key to us is that the relative economic performance is now finally aligned with relative monetary policy.
"We would expect the EURUSD to be weak given the poor economic prospects (which also causes concern about the rising support for populist parties) and now monetary policy is pushing in the same direction.
"On the chart, we assume that the ECB is successful in increasing their balance sheet by โฌ50bio a month from Mar (eventually with QE) and we assume that the Fed starts to allow their balance sheet to contract by $30bio a month from Jan 2016.
"This will bring $1.5trio of the relative balance sheet. On that basis, we look for a steady depreciation of EURUSD down to 1.10, over the two year period, after an initial acceleration in Q2โ15 as QE comes into view."
Euro Predicted to Move Sideways Against the Pound, For Now
The sideways trek in the euro to pound exchange rate continues.
Support at 0.7800 defines the bottom of the range and the resistance at 0.7867 is seen forming the upper band.
Commenting on the outlook is Luc Luyet at Swissquote Research:
"Given the underlying bearish trend, a test of the key support area between at 0.7767 (30/09/2014 low) and 0.7755 is favoured. Another
hourly resistance lies at 0.7885 (31/10/2014 high).
"In the longer term, the underlying downtrend favours a test of the major support area between 0.7755 (23/07/2012 low) and 0.7694 (20/10/2008 low) at minimum. A decisive break of the resistance at 0.8034 (25/06/2014 high) is needed to suggest some exhaustion in the medium-term selling pressures."
