Sterling Live on Wed 25th Sept: GBP Risks 'Skewed to the Downside' When GBP vs USD Moves Above 1.5500

The British Pound Sterling (Currency:GBP) remains on the back foot against the US dollar and euro on Wednesday morning, essentially maintaining a similar tone to the previous days trade. There is no UK data due today so GBP is prone to events in the US and Europe. We consider some interesting forecast notes in the wake of recent moves in Sterling.

Latest exchange rates:

• The Pound Sterling to Euro (GBP/EUR): 0.21 pct higher at 1.1904.
• The Pound Sterling to Dollar (GBP/USD): 0.43 pct higher at 1.6073.
• The Pound Sterling to Australian Dollar: 0.79 pct higher at 1.7177.
• The Pound Sterling to New Zealand Dollar: 0.92 pct higher at 1.9725.

PS: These are wholesale market quotes, your bank will charge a discretionary spread to the figures. However, an independent FX provider will guarantee to undercut your bank's offer, thus delivering more currency. Please learn more here.

15:50: Strong resistance ahead for Sterling recovery

Matt Weller at GFT today tells us:

"The GBP/USD has bounced in sync with its mainland cousin, bouncing back above the key 1.60 level. As of writing, the pair is testing resistance at the Monthly R2 Pivot (1.6055), a level that provided clear resistance earlier this week as well.

"While rates could still break through this ceiling, the strong level of resistance is likely lead to at least a pause in the strong rally we’ve seen in today’s early European session."

15:21: GBP finds its form

Sterling appears to be back on track, GBP rose against the dollar after a retail sales report from the Confederation of British Industry (CBI) showed that sales jumped at their fastest pace since June 2012 this month.

Omer Esiner at Commonwealth Foreign Exchange says:

"The strong sales number suggests that solid consumer spending over the summer continued into the critical back-to-school season in the fall and that the rebound in growth seen in Q2 continued into the beginning of the second half of the yea

"Three BOE policymakers this week said there was no chance of a rate hike anytime soon, despite strong U.K. economic data. Continued dovish rhetoric from the BOE could keep the pound’s gains limited going forward."

13:26: Bank of England say no housing bubble

The Bank of England's Financial Policy Committee (FPC) said the UK housing recovery, "appeared to have gained momentum and to be broadening."

On the question of a housing bubble the Bank said price action was under control, based on gauges such as level of activity, debt costs and prices compared with incomes.

12:19: Sterling tipped to continue relinquishing gains

UniCredit Bank remain bearish on GBP:

"Sterling is expected to progressively relinquish its latest gains against both the USD (back to 1.55 and below) and the EUR (above 0.85). We still favour remaining short GBP against the other two units."

11:27: Pound / US dollar exchange rate bias remains to the upside

Ipek Ozkardeskaya at Swissquote Bank says traders continue to pick up GBP/USD on the cheap:

"GBPUSD rebounded to 1.6020 in New York as traders continue to see buying interest in GBP before the growth report due tomorrow. The pair traded in the tight range of 1.5980/1.6005 in Asia. The bias continues to remain on the upside."

12:01: Sterling looking exhausted

Piet Lammens at KBC Markets:

"Thursday’s poor retail sales triggered a profit-taking move in sterling. The recent run of sterling, both against the dollar and the euro, looks a bit exhausted.

"So, further consolidation/correction might be in the cards. That said, we don’t see reasons for a real trend reversal of sterling unless the UK eco data would turn for the worse. We look to sell EUR/GBP in case of a more pronounced correction, but are not in a hurry."

10:35: An over-valued pound

Read the full analysis of the current GBP valuation from Stephen Gallo at BMO Capital.

10:34: GBP continues to climb against the New Zealand dollar

New Zealand posted larger trade balance deficit in August (NZD -1.191mn vs. NZD -774mn a month ago), with higher expansion in imports than in exports. The kiwi continued its downside correction. GBP/USD at 1.9436. Good levels?

09:16: EUR/GBP at fair levels?

More from Gallo, this time on the current valuation of the euro / pound exchange rate:

"If the BoE did have a preference for a level in EUR/GBP, we believe it would for the moment be stable at about current levels or perhaps slightly higher, around the average over the last 5 years (roughly £0.8500).  Unwanted exchange rate volatility could seriously erode the BoE’s ability to appropriately calibrate monetary policy for the UK and create uncertainty for UK corporates.   

"Outside of the impact of higher UK rates, fragmentation within Europe’s banking system and the potential for additional bank funding constraints over a 3-6-month horizon are amongst the most prominent downside risks facing UK growth."

08:31: GBP risks skewed to the downside

Stephen Gallo at BMO Capital Markets believes GBP is at risk of a further correction lower. He says:

"Above $1.5500 in GBP/USD, we believe that the risks facing the GBP are skewed more to the downside, leaving room for sterling to fall back before year-end, and heading into Q1 2014.

"The market has probably over-estimated the extent to which the BoE is likely to make use of the interest rate channel through tighter monetary policy in order to achieve its goals and avoid triggering its self-imposed CPI ‘knock-out’.  The BoE has an entirely new range of macro prudential tools which it can lean on instead, should economic developments warrant."

08:20: Data points to watch today

What will currency markets be keeping an eye out for today? With no UK releases attention will be on Europe and the US.

Craig Erlam at Alpari says:

"First up we have the German Gfk consumer confidence survey, which is expected to rise to 7 in October, up from 6.9 in December.

"Later on during the US session, we’ll get the durable goods orders for August, which are expected to rise 0.2%, following last month’s shock 7.3% decline. It is worth noting that these numbers are very volatile and the actual figure is actually rarely in line with forecasts.

"We have the release of the new home sales figures for August. This is expected to rise to 420,000, following July’s surprising slump. There’s going to be a lot of focus on the housing market in the months ahead, as the Fed considers tapering its asset purchases."