British Pound / Dollar Exchange Rate Outlook: GBP/USD picture remains unclear

In early afternoon trade in London we see the pound to US dollar exchange rate is trading 0.43 pct higher at 1.5974.

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The boost for the British pound came following better-than-expected employment figures and a decidedly more confident Bank of England; details of which are all found on today's live coverage stream.

Pound dollar exchange rate outperforming today, but what of the outlook?

UK developments were all uplifting for Sterling this morning.

Employment numbers showed greater improvement than expected and, more importantly, the BoE Inflation Report showed much more optimism on the outlook for the UK.  

Unemployment is now expected to reach the BoE’s threshold sooner, growth is expected to pick up quicker, and inflation is expected to run closer to target.

"It is no wonder that the GBP is outperforming, but for GBP/USD the focus now shifts to Fed speakers—most notably Bernanke tonight and Yellen tomorrow," says Shaun Osborne at TD Securities.

Concerning the outlook for the pound to US dollar exchange rate, Osborne says the currency pairing is likely to maintain a sideways bias despite today's recovery:

"On the charts, GBP/USD’s overnight bounce has kept the pair within the broad neutral range that has held since late September, and so far there are no clear signals that the sideways trend will break anytime soon.   The 1.5880/90 area marks the bottom end of the range however, and a move below there would likely give way to more downside."

Euro dollar exchange rate softens

Turning to the headline euro dollar exchange rate, EUR/USD has softened from yesterday’s highs, with a softer EZ industrial production print helping add to some mild, broad USD strength.  

"As with most of the FX space though, the pair has lacked any strong catalysts since the beginning of the week.  Bernanke’s remarks tonight, and Yellen’s testimony tomorrow are the highlight events in the coming sessions," says Osborne.

Whether these speakers indicate earlier tapering (even via any changes in their outlook on the recovery) should be the biggest driver for EUR/USD.

"A lack of clear indication of earlier tapering could see a further squeeze higher for the pair in the short run, but the broader trend is still lower in our view," says the TD Securities analyst.