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Outlook for pound dollar exchange rate (GBP/USD) remains positive, GBP recovers post-inflation losses

By Sam Coventry

The outlook for the pound / dollar exchange rate remains constructive with the GBP managing to reverse morning losses encountered in the wake of the release of January's inflation data.

The pound to US dollar exchange rate has today been rather volatile with the weakness seen ahead of the release of today's inflation data release accelerating after the event itself.

(Note: All USD quotes here refer to the wholesale spot market. Your bank will charge a spread at their discretion when passing on a retail rate. However, an independent FX provider is so well placed on the market that they are able to deliver you up to 5% more currency. Please learn more here.)

Sterling has since reversed losses, a move confirming the UK currency to be dominant at present and feeding into assumptions of further gains in the longer-term outlook.

As mentioned yesterday the GBP/USD is still technically inclined to test 1.7.

Adding to positive sentiment concerning the outlook for Cable Luc Luyet at MIG Bank says the bias remains constructive:

"GBP/USD has broken the key resistance at 1.6668 (24/01/2014 high). However, yesterday's bearish reversal (shooting star) suggests a short-term exhaustion of the buying interest. A break of the support at 1.6693 would confirm a weakening trend and call for a deeper correction. Another support can be found at 1.6600. A resistance now stands at 1.6823.

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"In the longer term, the technical structure favours a bullish bias as long as the support at 1.6220 (17/12/2013 low) holds. The decisive break of the resistance at 1.6668 opens the way for a move towards the major resistance at 1.7043 (05/08/2009 high). However, a sustainable move above that level is unlikely in the next few weeks."

Markets: No clear USD trend

Markets are mixed and relatively quiet leading into a shortened NA trading week. Equities are flat; oil has jumped higher; gold is off its recent highs and the 10year US yield remains close to 2.70%.

In FX, there is no clear USD trend; with most currencies moving on domestic stories.

Today, there is US data, with the TIC data likely to provide an update on how flows into the US have progressed.

"As the FX market increasingly shifts its attention from the pace of tapering to the path of interest rates, this week’s release of inflation and Fed minutes will be the highlights. Weather continues to be a major hurdle in judging the economic foundation and this was exacerbated by last week’s storms," says Camilla Sutton at Scotiabank.

EUR is strong, having traded to a fresh one-month high and up 0.2% into the NA session. German ZEW (investor confidence) came in stronger than expected on the current situation (55) but weaker on the forward expectations (55.7).

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