GBP/USD Breaking Lower: Transferring Money Forecasted to Start to Get a Little More Expensive from Here
The dominant feature of currency trade so far this week has been the big gap lower by the U.S. Dollar as Larry Summers, the leading candidate to succeed Ben Bernanke as Federal Reserve Chairman, withdrew from the race.
This has propelled the Pound to US Dollar exchange rate higher towards the 1.6 level providing welcome levels for international transfer markets.
"Sending money to the USA is now at its cheapest level since January and of course the same can be said for pegged currencies such as the UAE Dirham," says Robin Haynes at Currency Index.
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British Pound turns softer, are more losses ahead?
However, on Tuesday we have seen a retreat lower by the British Pound.
The retreat will trigger nerves amongst those holding out for higher pound to US dollar exchange rates.
RBS yesterday reported, we could be witnessing the end of the Sterling rally.
Today UniCredit Bank say:
"Steady or slightly lower UK CPI data this morning are unlikely to push cable to test 1.60.
"Consequently, we view current levels even more as quite attractive to return short. Likewise, the current EUR-GBP fall below 0.84 remains a buying opportunity."
US Dollar faces critical test on Wednesday
The next big driver for the US Dollar, and thus of critical importance for a GBP/USD rally to 1.6, is the US Federal Reserve Meeting
"Traders may be loath to enter new positions ahead of Wednesday’s high-impact Federal Reserve meeting," warns Matt Weller at GFT.
According to Lloyds Bank Research, "the Fed is widely expected to announce the start of a steady scaling back of its policy stimulus.
"While there remains significant uncertainty over the size of the tapering, from a market’s perspective, attention is likely to focus on any clues the Fed gives over its longer-term strategy for liquidity withdrawal."
However, there are still those backing the GBP
Despite the nerves concerning the outlook for the Pound Sterling / US Dollar exchange rate, it must be remembered that technically we are in bullish territory.
"Currently the GBPUSD is paused but remains firmly bid. The pair remains comfortably in the uptrend channel trend momentum indicators are flattening in bullish territory. We would buy on dips with our near term target 1.6000. Watch for next resistance to come into play at 1.6007," says Peter Rosenstreich at Swissquote Research.