GBP/USD: Forecasting a Decline Below 1.54 as Analysts Refuse to Discount an Appreciation of USD in 2013
The guise of the taper (gradual ending of US Federal Reserve's quantitative easing programme) and accompanying Fed rhetoric will likely have a significant bearing on the path of the US dollar.
Analyst Emmanuel Ng at OCBC points out that despite the approach of the taper, the US Dollar continues to fail to rally:
"We note the failure of the USD TWI to gain universal traction of late despite the September FOMC drawing nearer.
"We continue to attach potential dollar strength to the prospect of the eventual Fed taper on a structural basis given that the other major central banks remain on a relatively dovish slant.
"We retain our view that the EUR and the GBP may weather a taper relatively better compared to the likes of the AUD for example."
Will the Dollar advance be stopped in its tracks?
Gareth Berry at UBS chimes with Ng's comments saying:
"FX investors have generally embraced the stronger dollar theme in recent months while keeping a wary eye on rising US yields − after all if financial
conditions tighten too much that could stop the dollar’s advance in its tracks.
"Now, not one, but two US economic reports have disappointed in quick succession. First, new home sales on Friday plunged m/m, and Monday’s durable goods orders came in soft too.
"Could this be evidence that tighter financial conditions are already having a detrimental impact?
"UBS economics is not overly concerned for now, and maintains the view that the Fed is likely to announce a start to QE3 tapering at the Sept 17-18 FOMC.
The outlook for the British Pound to US Dollar exchange rate
Turning to the technical forecasts for the British pound versus US Dollar exchange rate Berry says:
"Having advanced sharply, the pair is correcting and unwinding the sharp advance. There is scope for more weakness to test the strong support at 1.5373.
Resistance is at 1.5718."
Ng says:
"The GBP-USD was also capped on Monday after the BOE’s Bean was cited in the media as saying that the forward guidance implied that long term rates are not envisaged to rise in the near term.
"Expect market caution to continue to circulate ahead of Carney’s appearance tomorrow although we look for initial support towards the 200-day MA (1.5514) while top side resistance is expected at 1.5600 and then at 1.5655."
Kathy Lien at BK Asset Management says:
"Disappointments in economic data has almost become the norm for the U.S. which is part of the reason why investors are skeptical about the size and scope that asset purchases will reduced in the coming months.
"The Conference Board's consumer confidence index is scheduled for release tomorrow and there's a reasonable chance that the data will also be weak, making it difficult for USD/JPY to rally."
British Pound volatility ahead, steeper decline in GBP/USD towards 1.54
Kathy Lien warns that the British Pound is due to witness an increase in volatility, particularly as we approach mid-day tomorrow:
"Sterling could see some volatility from Bank of England Governor Carney's first major speech on monetary policy on Wednesday.
"The new governor wasted no time in overhauling processes in the U.K. central bank and he will most likely be asked a multitude of questions about his commitment to keep interest rates low under his new forward guidance policy.
"We know that the BoE has no intention of raising interest rates until 2016 but recent improvements in U.K. data has led investors to price in a move as early as the first quarter of 2015.
"The central bank is skeptical about whether the recovery can sustain its current momentum, a view that many see as overly pessimistic particularly after upward revisions to GDP growth.
"As we expect the central bank governor to remain dovish, we also feel that the recent pullback in the GBP/USD could be the beginning of a steeper slide that could take the currency pair down to 1.54."