Dollar rate today: Short-term outlook for GBP/USD favours USD, but longer-term GBP should comeback

• The pound sterling to US dollar exchange rate is 0.13 pct in the red at 1.5932.
• The US dollar to pound sterling rate is at 0.6276.

Potential end to US government clash strengthens greenback

The dollar rate is today seen higher on signs that the US government is approaching a short term solution has strengthened the dollar, and Federal Reserve minutes released last night showed that there is still a possibility that tapering could occur as we approach year-end.

"We have revisited levels below 1.60 and we don’t see the pound making any sort of recovery towards 1.60 today. Provided unemployment claims due at 1.30pm deliver the goods, it could be further down for sterling," says Sasha Nugent at Caxton FX.

Outlook for pound vs dollar rate today

ICN Financial Markets today confirm that while the short-term outlook for the pound vs dollar is pressured, the longer term picture favours GBP:

"The pair’s downside move pushed it to trade today below 38.2% correction at 1.5940 as shown on graph. Stabilising below the mentioned level is negative and might clearly extend the downside move towards 50% and perhaps 61.8% correction at 1.5840 and 1.5745 respectively. The downside move requires stabilising below 1.6010 today.

"The trading range for today is among the key support at 1.5745 and key resistance at 1.6085.

"The general trend over short term basis is to the upside as far as areas of 1.5280 remains intact targeting 1.6540."

Emmanuel Ng at OCBC Bank says he is neutral on GBP/USD:

"The GBP-USD was undermined on Wednesday after the manufacturing and trade deficit numbers came in on the wrong side of prior market expectations.

"Look to the BOE MPC for further cues although we are increasingly neutral towards the pair after the break below 1.6000. Next significant support is seen towards 1.5900."

Yellen has nothing to do with greenback strengthening

Several commentators seemed to attribute yesterday’s USD recovery to the announcement of Yellen as the next Fed chair.

Analysts at Lloyds Bank CB Research disagree with this assessment:

"In reality we see the strengthening USD as more a function of increasing than declining market concern about the US situation.

"We had seen some evidence of stress on Tuesday as risk premia increased in various markets, and the impact on the forward market as demand for USD increased suggested some potential for upward pressure on the USD, and this materialised yesterday."

Whether a continued failure to reach a Budget agreement would continue to be USD positive is unclear.

While it is generally the case that rising risk premia have tended to be USD positive up to now, it is less clear that a move inspired by US concerns will continue to favour the USD, especially if expectations of US tightening are pared back as a result.

The FOMC minutes overnight provided little clarity, but the very limited mention of the potential fiscal problems suggests scope for tapering is less than it was at the time of the meeting.